Commercial real estate roundtable: SouthFloridaCEO magazine assembled leading real estate industry executives for a frank discussion about the state of the commercial real estate market in South Florida

South Florida CEO, Sept, 2004

SouthFloridaCEO: One of the chronic worries among real estate developers is the idea that we might either have a glut on our hands or that development might be outpacing demand. Would you talk a bit about what you're seeing in the counties that you operate in as far as the demand for current commercial space and whatever is in the pipeline?

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ERIC SIEGREST: Statistics indicate that the absorption that we manage in these markets can outpace the supply over a relatively short horizon. But I tend to rely more on anecdotal evidence. I can tell you that, in my experience, in between Coral Gables and the [central business district] CBD, it's clear that businesses are definitely rebounding. I've seen more new companies, that currently don't have a presence in Miami, looking to lease office space during the last three months than I've seen in the two years prior combined. To attract true, new businesses to Miami has always been our challenge, and we're seeing that right now: multinationals, credit-quality companies. I'm very encouraged that demand will outpace supply over the next two to five years.

SFCEO: Is there any pattern to the type of employer coming to town or expanding?

SIEGREST: The one link, obviously, is that they're all, in one way or another, trying to either service people who are doing business with Latin American companies or they are they are companies themselves doing business in Latin America.

TERE BLANCA: We have that trend again of attracting regional headquarters for Latin America, like we did many years ago when many of them came into Coral Gables and downtown Miami. That had slowed down tremendously, but I think that during last year and the first quarter of this year, business started coming back. Some that existed here already have expanded significantly, like Kraft Foods and AIG, which brought its headquarters from New York City onto Brickell Avenue. Many of them are regaining confidence in Latin America and understanding that it's important to be here. That's very positive in comparison to last year.

SFCEO: Miami-Dade County in particular has always been a big draw for companies that want to do business in Latin America. What, if any, companies are expanding into Broward and Palm Beach?

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JOHN BELL: Decision makers are often driving their real estate decision by where they live. Miami might not have the residential environment, or the schools, or some other kind of area amenities that perhaps decision makers want to have that Broward County and Palm Beach County may have done better planning for. Some of the companies that we're working with are drifting a little bit north and that's not just on the office side, that's on the industrial side as well. As long as the labor pool is still relatively accessible and as long as they can have occupancy costs that are within the range of other areas, we've found that the Broward and Palm Beach markets clearly start to pick up some speed in attracting those tenants.

SFCEO: How are the sub-markets--office, retail, industrial--doing now?

CHARLES FOSCHINI: If you look across the three counties, the areas that had a lot of negative absorption, or buildings delivered and not filled, are West Dade, Sawgrass, and then Cypress Creek. Talk to leasing brokers in all three areas, they've seen unprecedented--as opposed to the past three years--activity in all of those markets. It seems to be a logical place for large users to go because there's lots of space available.

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BELL: Downtown Fort Lauderdale is still a big risk factor because there's been so much new construction there with not the same flow of tenant activity. Plus, there's the kind of "Huizenga factor" where any one of those companies can take off. Vanguard Rental Group decided to stay with its call center but another division left. Extended Stay America moved out, leaving 40,000 feet vacant and there was Renaissance Cruise Line [which went bankrupt and shut down]. The deals that seem to be happening in Fort Lauderdale have been lateral moves: tenants switching from building to building.

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BLANCA: We haven't had a lot of new construction so I think that will really help all of these markets stabilize over the next 12 to 18 months.

EDGAR JONES: The reality is that competition for building new products is difficult with residential. We've got residential taking up land that was formerly for both office and industrial product. Also, the cost to construct is increasing because, you know, the residential market is so volatile and so significant.

MARK LASMAN: One market in particular that has suffered over the last three years is downtown West Palm Beach. It was a marketplace of about 550,000 square feet and the Renaissance Group did a terrific job of creating a live-work-play environment there. However, they had a 10-year project that failed twice and then they went forward with City Place and dropped 750,000 into a 550,000-square-foot market, and now they're trying to absorb all that space. Downtown got hurt, Clematis Street got hurt, and I just think from the standpoint of absorption it was just way too much. Hopefully, they'll stabilize over three to five years. The new convention center should bring in more people and feed the retail and the office.