Annual commercial real estate report: great expectations: after two years of high vacancies and rent concessions, the South Florida commercial real estate markets appear ready for a rebound. How soon and how strong depends on he sector—and even more on the neighborhood. But the fundamentals, as they say, are looking good - Annual Commercial Real Estate Report

South Florida CEO, Sept, 2003 by J.P. Faber, Rochelle Broder-Singer

A similar buffeting by national and international trends ripped through the Miami Beach office submarket, which, as of the 2nd quarter, had the county's worst vacancy rate of 29.3 percent. There, a spate of new office development ran into the collapse of the dotcom industry and the downsizing of the Latin entertainment industry, both prime sources of Beach tenants.

In contrast to Airport West and Miami Beach, Miami-Dade's Central Business District (CBD) downtown and Brickell Avenue--has been the healthiest major submarket in the county, with a combined second quarter vacancy rate of 17 percent. What makes that figure even more remarkable is the recent flight of companies that have moved to Coral Gables--including International Bank, Atlantic Security Bank, BAC and Bayview Financial--and major new Class A space at the Four Seasons tower and the Espirito Santo Plaza, weighing in with 200,000 square feet each.

"Brickell and downtown are still both doing well. There was a lot of sublease space, but that's being absorbed," says Brian Gale, managing director of the Miami office of Taylor & Mathis. "In the next year, I think you'll see vacancy rates coming down in both Brickell and downtown." While there are not a lot of new companies moving in, says Gale, Miami's CBD is now seeing a rush of activity, as companies begin to upgrade to new--and often larger--spaces, moving from Class B buildings to Class A buildings, and from C buildings to B buildings.

"The space that's being leased is being transferred from other spaces. We don't tend to get a ton of new demand from the outside," says Eric Siegrist of Jones Lang LaSalle. "In terms of absorption I'd like to think that a white knight will come in and take 100,000 square feet. That won't happen, but someone will have a need to grow, and to move."

"Everyone is kind of playing musical space," says Brian Collins, lead Miami executive for Millennium Partners, the firm developing the Four Seasons tower, which houses the Four Seasons hotel plus office, retail and condominiums. "The interest we see is all from firms already on Brickell. The leasing numbers are [similar], so tenants want to move up in quality. In our case it's high end firms--lawyers, accountants--that want to entertain their clients here." A key example is the recent lease signed by current CBD resident HSBC bank for 55,000 square feet in the Four Seasons.

While Miami's CBD is busy, there is even more activity in Coral Gables, which has seen a dramatic rise in office inventory with the addition of Allen Morris' Alhambra Towers and the Codina-built Alhambra building. Despite the addition of new inventory, however, there was more net space absorbed in Coral Gables in the first half of 2003--over 100,000 square feet--than in any other South Florida submarket.

One big reason for the activity, says Donna Abood of Abood Wood-Fay Real Estate Group, is the trend among executives to locate their offices closer to their residences--and the Gables has nothing if not a high concentration of affluent housing. "It's a trend we've seen in the last 12 months--people who want to work closer to home," she says.