Miami's office market high in national rankings, but prospects dimmer
By Marilyn Bowden
The Miami office market is doing relatively well on occupancy and lease rates compared to markets in the rest of the nation, first quarter reports from major real estate firms suggest, but a huge inventory of space either just delivered or imminent could make it among the last to regain equilibrium.
Jones Lang LaSalle's first-quarter national survey rates Miami among the top five urban areas lagging in a 12-month projection of a return to overall market health.
Miami's exact position among its peers depends on who's doing the metrics; different criteria yield different results.
According to CB Richard Ellis researchers, only 16 of 56 other US markets in first quarter 2010 recorded occupancy levels as high as or better than Miami. They list first quarter 2010 vacancies in Miami at 16.5%, the same rate the company found in Los Angeles and about level with Baltimore, Houston, New Jersey, Oakland and San Francisco. The national average vacancy, CB Richard Ellis found, is 17.8%.
Cushman & Wakefield, which concentrates on central business districts, puts the current vacancy rate locally at 19.6%, ranking it 12th highest in the nation and well above a national average of 15%.
CB Richard Ellis computes Miami's average asking rates in the first quarter 2010 at $29.21, well above the national average of $25.61. Cushman & Wakefield analysts measured average asking rates in Miami's central business district at $36.17 a square foot, seventh highest in the nation, just below a national average of $36.88.
Miami ranks No. 1 nationally, Jones Lang LaSalle notes, in one field where it's not a good time to excel: expected speculative construction completions, which will represent 6% of the market by the end of this quarter, when nearly 1.3 million square feet of new supply will open with only 25% pre-leased.
With new product representing about 3% of its market, Seattle, WA, is a distant second.
Most US markets are not expecting new construction to hamper a return to market health, the company reports — and that could put Miami among the top laggards of the 36 US markets Jones Lang LaSalle tracks in the quest for full market revival.
Cushman & Wakefield reports that at the end of first quarter 2010 the 12.9 million square feet of total office space in the Miami central business district, which includes Brickell, made it the 20th largest downtown in the US.
Primarily it's new product that drove vacancies in the downtown-Brickell in the first quarter this year, CB Richard Ellis reports. It ranked Miami's downtown markets second among quarterly increases in vacancy in the first quarter, with a 3.7% rise, behind Tucson, AZ.
Market researchers find some cause for renewed hope. Nationwide, Jones Lang LaSalle analysts report, the last quarter that recorded positive absorption was fourth quarter 2007. But the company's figures show a "slowing decline" since occupancy reached its lowest point in the fourth quarter 2008.
Grubb & Ellis cites "a significant slowdown in new construction completions and tempered tenant consolidations" in the quarter as evidence of an uptick in the Miami market.
"The North American office vacancy rate continued its upward climb," write CB Richard Ellis analysts, speculating that "some markets appear to be emerging from the recession," especially in the Northeast and Mid-Atlantic states.
Two signs of stabilization that continued to surface in the beginning of this year, reports Jones Lang LaSalle, are a decline in sublease levels for a second consecutive quarter and asking rents that settled near the bottom in the leading gateway cities.
What markets are doing well? CB Richard Ellis found only Manhattan with single-digit vacancy — and it's close to double digits at 9.7%. Also, although New York's Midtown market lost 26.2% in the level of asking rates last year, Jones Lang LaSalle reports, it registered a decline of only 1.3% in the first quarter this year.
In Massachusetts, CB Richard Ellis assigns the Cambridge market, adjacent to Boston, a vacancy of 11.8%; Boston itself has vacancies only slightly better than Miami at 14.5%. Washington, DC, ranks between those two at 12%; at 14.4%, nearby Northern Virginia is the only other US market with vacancy below 15%.