Is it a Good Time to Own a Trophy Building in Miami?

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According to global real estate advisory firm Jones Lang LaSalle (JLL), the answer is "yes".

JLL reports that South Florida's economy is gaining  steam, and the region's three largest urban office markets are experiencing increased leasing activity and, in some cases, testing all-time records for pricing.

Premium office spaces in Miami's Central Business District (CBD) are dwindling following four consecutive years of significant absorption just as five-year-low vacancy rates among Ft. Lauderdale's premier properties spark talk of new construction. Meanwhile, top-tier trophy assets in West Palm Beach are experiencing a 13.1 percent vacancy rate, as suburban companies seize the opportunity to enter the Class A downtown market without breaking the bank.

In short: it's a good time to own a trophy office building in South Florida, according to JLL's Spring 2014 U.S. Skyline Review. Factors such as an influx of new-to-market tenants, scarcity of premium space, and an overall lack of new construction planned are contributing to a shift towards a more landlord-favored market.

Miami's CBD office market, comprised of the Downtown and Brickell submarkets, is flirting with some of the highest asking rents quoted since 2008, ranging in the neighborhood of $51.00 to $60.00 per square foot for premium space. Leasing of premier spaces has left relatively fewer options for high full floor offices with commanding, unobstructed views. At the present, only four penthouse options remain available which would be Miami's priciest offices. Strong leasing dynamics are helping to fuel sales activity, with 781,659 square feet of skyline inventory trading hands in 2013.

"It's really a perfect storm for high quality office buildings in downtown Miami right now," explains Scott Strickland, Executive Vice President for JLL in Miami. "A combination of new corporate users entering the market and expanding here, a strengthening economy, and an overall dearth of high quality new space with desirable views on the immediate horizon is putting upward pressure on rents, downward pressure on landlord concessions, and leaving large tenants with few premium options to choose from."

To the north, downtown Ft. Lauderdale is coming off one of its most active years ever, with 166,500 square feet of trophy space absorbed in 2013. The past year saw blockbuster leases signed by Greenspoon Marder, Becker & Poliakoff, Prolexic Technology and Premier Beverage, removing several large blocks of space from the market. Year-over-year vacancy among Skyline properties has fallen 4.3 percent as a result of this absorption, putting high-end space at a premium and spurring initial whispers about the need for new construction for the first time since 2006.

Office buildings in West Palm Beach's urban core are experiencing a 'flight to quality' as suburban tenants, drawn to asking rates near historic lows, seize the opportunity to upgrade to Class A space downtown. This activity has put top-tier properties in tenants' cross-hairs, with vacancy rates for trophy buildings downtown experiencing a 13.1 percent vacancy rate. This tightening should continue for the foreseeable future, as there is no new Class A office construction underway.

"Miami is setting the tone for all of South Florida, having dramatically tightened over the last 12 months and buoying optimism across the broader market," said Jeff Morris, Managing Director for JLL's Capital Markets Group in Florida. "With little by way of new development planned over the coming years and rental rates headed higher, we expect to see sustained interest among investors trying to capitalize on the momentum in the market."