Demand from big-name tech and finance firms looking for pricey, newly built office space in South Florida is igniting a commercial real estate boom.
As major companies, C-suite executives, and startup founders migrate to the Sunshine State at an accelerated pace — thanks to the migration of businesses away from urban centers like New York City set off by the coronavirus pandemic as well as alluring tax incentives — competition to lease prime office space is growing fierce.
Out-of-state companies are close to inking deals for prime office space in Miami and West Palm Beach, lending more support to the claims that Florida is ascending to rival Wall Street.
Insider has learned:
- Seattle-based Microsoft is in advanced negotiations to take up 30,000 square feet at a brand-new office building in the Downtown Miami neighborhood of Brickell called 830 Brickell Plaza.
- Hedge fund giant Citadel has shortlisted 830 Brickell Plaza in its search for an office of up to 80,000 square feet in Miami. Its head office sits in Chicago.
- Law firm Baker McKenzie, also headquartered in Chicago, is also said to be in talks for space at 830 Brickell Plaza.
- Elliott Management is close to inking a roughly 40,000 square foot lease at at 360 Rosemary Avenue in West Palm Beach, a new office building from mega-developer Related.
- Maryland-based mortgage company New Day USA is finalizing a lease for about 50,000 square feet at 360 Rosemary.
- Local private equity firm H.I.G. Capital recently signed on for a little over 20,000 square feet of office space at The Plaza, a mixed-use development in the Miami neighborhood of Coral Gables.
'The overall activity in the market is beyond anything I have ever seen'
Miami has seen only a handful of new office projects in recent years.
The raft of big-name tenants clamoring to take space at 830 Brickell Plaza, a 55-story, under-construction office tower that is scheduled for completion late next year in the Brickell section of Downtown Miami, shows how gleaming new commercial spaces capture the interest of newcomers and local tenants alike.
"Right now we have 12 full-floor proposals," said Brian Gale, a vice chairman at Cushman & Wakefield, who leads a Miami team overseeing leasing at 830 Brickell. "The overall activity in the market is beyond anything I have ever seen, and this is my 27th year in commercial real estate."
None of the deals have been signed yet and could fall still through, sources warned.
Gale declined to confirm or comment on any specific transactions that were being negotiated at 830 Brickell. Citadel, Microsoft, and Baker McKenzie all declined to comment.
Major out-of-state tenants are about to sign in West Palm Beach
In West Palm Beach, another prominent office market in South Florida about 80 miles north of Downtown Miami, new office tower 360 Rosemary Avenue is drawing attention from out-of-state firms that are either relocating or setting up outposts in the area.
Maryland-based mortgage company New Day USA is finalizing a lease for about 50,000 square feet at 360 Rosemary, a roughly 300,000-square-foot office building scheduled for completion in the second quarter of 2021. A spokeswoman for New Day USA said the company could not yet comment on the pending deal.
360 Rosemary is also where the $40 billion investment management firm, Elliott Management, is close to inking a roughly 40,000 square foot lease, several people familiar with its negotiations say. Both Elliott and a spokeswoman for 360 Rosemary's developer, Related, didn't respond to a request for comment.
Competition for Miami office space ramps up
Area companies are adding to the demand for new office space, especially in Miami.
In Coral Gables, an area southwest of Downtown Miami, local private equity firm H.I.G. Capital recently signed on for a little over 20,000 square feet of office space at The Plaza, a mixed-use development that includes two office buildings, one of which was recently completed.
Shay Pope, a senior vice president at CBRE, said that he is representing a financial firm that is also in negotiations to take a roughly 30,000 square foot space at The Plaza. The tenant, Pope said, had previously been looking at 600 Brickell Avenue, a roughly decade-old office building in Downtown Miami, but hadn't been able to complete a deal because direct space at the property was scarce.
That's a key indicator that the Miami market has become increasingly tight as both in-state and out-of-state interest in new office space has picked up in recent months.
"The challenge is finding space like that in Miami right now," Pope said. "It pushed our search to new development."
More deals are pending at The Plaza, according to Tere Blanca, the chairman and CEO of the commercial real estate services firm Blanca Commercial Real Estate, who is handling leasing at the property.
The Plaza's office component, located at 245 SE 1st Street, consists of two towers totaling roughly 450,000 square feet. The second of the two is scheduled to be completed by the end of the year, Blanca said.
"They're trophy assets for the new-to-market tenants streaming into South Florida," Blanca said. "We certainly are engaged in active negotiations to lease more space."
Commercial real estate developers are betting on migration to the Sunshine State
The transactions are part of a wave of office deals in the South Florida market. Low taxes, year-round warm and sunny weather, and an influx of wealthy corporate and financial industry executives have made it a rare bright spot of activity in an otherwise moribund office leasing market nationally.
"There's around 1 million square feet of new-to-market tenants roaming around for space right now," Gale said. "This week alone we have received over 100,000 square feet of new inquiries."
The activity has caught the notice of developers, who are eager to tap into the demand.
Hines, for instance, is marketing a new 600,000-square-foot office tower in Downtown Miami called Miami WorldCenter in the hopes of securing an anchor tenant and breaking ground on the project.
Related, the developer of 360 Rosemary, has multiple development sites in Downtown Miami it has been shopping to tenants, according to market experts, and in West Palm Beach has announced plans for a roughly 300,000 square foot ground-up office building on the waterfront at One Flagler Drive.
"For years, the Florida office market was a game of musical chairs, where tenants would move around with small incremental growth, but there wasn't a lot of net new absorption of space," said Alan Kleber, a managing director at JLL in Miami. "Now there's so many new users coming in that you're beginning to see potentially enough demand to drive new construction."
Demand drives Miami office rents up
Recent entrants to the Miami market have shown a preference for top-tier, newly built spaces — and a willingness to pay premium rents to have them.
The nearly $600 billion alternative asset management Blackstone, for instance, recently signed on for 41,000 square feet 2 Miami Central, a Downtown Miami tower finished roughly four years ago.
"This is a new building close to Miami's transportation hub with efficient floors and a lot of light coming in," said Kleber, who represented Blackstone in the transaction. "The quality mattered to Blackstone. This wasn't a stale corporate office tower."
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Asking rents at 2 Miami Central range as high as $60 per square foot, sources familiar with the property said, about 50% higher than average office asking rents across the city of Miami, according to data from CBRE.
Asking rates at 830 Brickell — where Microsoft, Citadel, and Baker McKenzie are near deals — are in the upper $70s per square foot, among the highest ever sought by an office project in the city.
Florida notches wins as New York struggles
The vibrancy of the South Florida office market is an outlier nationally at a moment when few other major metropolitan centers are entertaining the prospect of new office development.
In once-booming office markets like Manhattan, for instance, the pandemic has nearly frozen leasing activity and prompted tenants to cast record amounts of office space on the market for sublease. In the fourth quarter of 2020, sublease space made up 24.2 percent of Manhattan's total availability, according to Colliers.
In Miami, by contrast, the sublease availability rate was at modest 2.2% at the end of the third quarter, according to CBRE. Less than 600,000 square feet has been cast on the market since the beginning of the pandemic through the third quarter, CBRE data showed, a fraction of the roughly 20 million square feet in Manhattan that's hit the market.
Remote work and a migration of businesses and residents to secondary cities across the country has clouded the timeline for a recovery in onetime office strongholds like New York City and San Francisco even as the ongoing rollout of vaccines has brought an end in sight to the pandemic.
South Florida, however, has been a beneficiary of the upheaval. The area's climate has made it an alluring escape for those tired of lockdowns and social isolation. The state's absence of an income tax and low corporate tax rate are also a magnet for high earners, such as financial executives, who have begun to relocate from New York City or set up ancillary offices.
Though accelerated by the pandemic, finance titans' predilection for the Sunshine State does predate it. In 2019, investor Carl Icahn, for instance, moved his company's operations from Manhattan to Miami. Citadel's chief executive, Ken Griffin, purchased nearly $200 million of residential property in South Florida that same year.
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