South Florida’s regional office market continued to improve from the impacts experienced as a result of the COVID-19 global pandemic. All three counties, in fact, recorded more than 100,000 square feet (sf) of positive net absorption during the third quarter of 2022, bringing year-to-date net absorption to more than 1 million square feet (msf). Overall vacancy ticked downward as leasing activity remained solid, combining for over 1.8 msf of new deals signed in the third quarter. Momentum allowed landlords to push asking rents to record highs, driven by heightened tenant demand for Class A office space.
Miami-Dade County held on to the top spot with more than 191,000 sf of positive net absorption recorded during the third quarter, combining for more than 603,000 sf of absorbed space so far in 2022. Leasing activity improved from the previous quarter with approximately 977,000 sf of new deals signed during the quarter, bringing year-to-date activity to 2.8 msf signed. The Class A segment contributed to 68 percent of the new deals and helped push the overall vacancy rate to 16 percent. Asking rates climbed to $48.69 per square foot (psf) with landlords confident in sustained demand by office users for quality space in major submarkets, including Downtown and Brickell in the Central Business District. In the urban core, Class A space in top-tier buildings, like 830 Brickell, had rents that topped out at $150 psf.
Broward County’s office market also had positive improvement in fundamentals with net absorption of 125,000 sf during the third quarter of 2022, which was attributed to the Chewy.com’s relocation to Plantation Pointe from the DCOTA Office Center. Otherwise, the office segment would have been more balanced between supply and demand for the quarter. Overall vacancy ticked upward due to the completion of Onyx Tower, a 277,000-sf multitenant Class A office building in Hallandale, which came online with over 93 percent still available. Leasing activity totaled 1.7 msf year-to-date, with 418,000 sf of new deals signed during the third quarter. This was a 40 percent drop from the previous quarter, which may indicate a trend in lower office leasing demand in Broward County.
Palm Beach County had another solid quarter’s performance in leasing demand with 113,000 sf of positive net absorption recorded in the quarter, bringing year-to-date absorption to 245,000 sf. Overall vacancy fell to below 12 percent for the first time since 2007. Back then, vacancy rose in the county as the economic downturn from the Great Recession sapped demand, coupled with a huge amount of new Class A office towers added in a condensed time period over the following 18 months. Palm Beach County’s office segment was the tightest office market in South Florida this quarter, and the overall vacancy rate in the Class A segment stood at 11.5 percent. Overall leasing activity was 474,000 sf of new deals signed in the last three months for a combined 1.5 msf of activity in 2022. As a result, the overall asking average pushed over $44 psf, and the Class A average rose above the $52 psf mark.
Office market fundamentals have been heading in the right direction with consistent improvements. Many commercial real estate professionals are hesitant to declare the office segment fully recovered with the uncertainty to which the “work from home” and “hybrid office” component will impact the market as companies continue to evaluate their office space needs while they initiate their employees’ return to the office. Another factor includes the Fed’s recent interest rate hikes to control inflation, possibly influencing an economic recession and what the overall effects will be to the commercial real estate industry and how long they will last. The “Great Migration” trend into South Florida also spurred more new-to-market tenants, including Citadel’s 95,000-sf deal at 830 Brickell, Goldman Sachs’ 35,000-sf lease at Southeast Financial Center, and Mindspace’s 30,000-sfdeal at the Gateway @ Wynwood. Another new-to-market deal over 100,000 sf was close to being signed in the Brickell submarket. In South Florida, Miami-Dade was the prime beneficiary of companies opening offices and/or relocating to South Florida, leading in demand growth and leasing activity, while Palm Beach County’s vacancy rate was the lowest in the region.
One thing is for certain: South Florida’s office segment is well positioned to withstand moderate impacts from an economic downturn. The office market’s current trajectory and strong preleasing of new Class A product should provide a softer landing relative to other major markets throughout the country.
Eric Messer is a senior research manager at Cushman & Wakefield.