South Florida’s office market is in the midst of a deep exhale after years of pandemic-fueled momentum, according to members of Avison Young’s top brass.
“I think we are taking a breath in South Florida right now,” said Greg Martin, a principal in the brokerage’s Fort Lauderdale/Boca Raton office. “In the last 12 months particularly, the nation has caught up with us. Throughout our market, [leasing activity] was down 20 percent. We blew it out of the water in 2022 and 2023. So yes, I think there is a pause.”
Martin joined four other colleagues — CEO Mark Rose, President Harry Klaff, Miami office principal Michael Fay and market intelligence analyst Jason Steele — on Wednesday at Avison Young’s Fort Lauderdale office for a panel discussion that primarily focused on office leasing and investment sales in South Florida and the rest of the nation.
Some submarkets such as Miami’s Brickell neighborhood, downtown Fort Lauderdale and downtown West Palm Beach continue to perform extremely well, fueled by new office towers under construction or in the planning phases, the panelists said.
“Fort Lauderdale gets looked over,” Martin said. “But the highest increasing rents [in the nation last year] were in West Palm Beach, Boston, Miami and Fort Lauderdale. You’re going to be seeing a couple of office trades that are going to let you know that confidence is building [in the Broward market].”
Indeed, this week downtown Fort Lauderdale’s Banc of America tower traded for roughly $220 million and the nearby Las Olas Centre I & II sold for $208 million.
However, outside of South Florida’s urban cores, owners of older, suburban office buildings are struggling, Martin noted. “I think there is a community of office owners trying to figure out what to do, and there is another community of them who are saying it is starting to turn, and we have to be patient.”
Last year, some office owners that couldn’t be patient were forced to sell at discounted prices, Martin said. For instance, Foundry Commercial in December sold a three-story office building in Sunrise for $36.5 million, $20.9 million less than Orlando-based firm paid for it in 2017.
“There were some unbelievable purchases in suburban Broward County at really low per-square-foot prices,” Martin said. “[The buyers] will sell in two years and look very smart.”
Some suburban office owners are selling to buyers seeking to redevelop the buildings into industrial projects, according to Steele. He pointed to Chicago-based Bridge Industrial last year demolishing Ryder System’s former headquarters in Doral to make way for Bridge Point Flagler Station, a 300,000-plus-square-foot industrial complex.
“Since Florida is land constrained, there have been some conversations of office to industrial,” Steele said. “With suburban office buildings [targeted for industrial conversion], they have to be single use tenant, be in close proximity to highways and have at least 8 to 10 acres. There are not a ton of those around here.”
Buyers, primarily family offices and small-to-midsize private equity firms, will be in the driver’s seat as they will be able to buy office properties at “opportunistic prices,” Fay noted.
“There are going to be some resets, and I think there will be some great opportunities,” Fay said. “We [marketed] an asset for an institutional fund last year. They were willing to take a 30 percent discount on the sale. There was not one institutional buyer that came in. It was only private capital firms and family offices.”
Avison Young CEO Rose said the brokerage is working with national clients that are creating funds to go out and buy distressed office properties at discounts.
“They are either buying low and coming in with a leasing strategy, buying low to retrofit [buildings], or buying low to do a conversion,” Rose said. “This is inevitable. If you have properties that have debt on them, and you don’t have money to reinvest or can’t refinance because of a leasing issue, those properties are going to trade at significant discounts.”