Where are the tenants?
Last Friday, I attended with 130 other professionals the presentation of the Official 2009 Annual Miami Office Market Report by the Commercial Industrial Association of South Florida, (CIASF). Data for the report was based on information from Black’s Office Guide. The report was prepared and presented by my two able office mates, Tom and Andrew Dixon. There was also a panel of office leasing professionals sharing their views of the office market and presenting estimates for the remainder of 2009 and 2010.
As an office leasing professional in South Florida for over 30 years acting as both a tenant and landlord professional broker representative, to me the glass is always half full. This market for the foreseeable future will be soft and stagnant, with higher vacancies, lower rents and greater concessions by landlords to keep existing tenants and attract new ones, particularly in the Downtown and Brickell Districts.
When the new office buildings hit the market in 2010, the Miami-Dade office market will have a total close to sixty million square feet of rentable space. Where are these tenants going to come from? The CIASF report shows that the number of businesses with more than 100 employees have shrunk to less than 300. Landlord/Developers building high-rise structures with large floor plates will find that users are few and far between for their space. Only larger tenants can efficiently use large floor plans.
The economy of South Florida is based on three structures holding up our communities; tourism, finance/trade and construction. Construction will not be a factor in the near term and tourism does not create a significant office demand. A majority of the office space I have leased is in Coral Gables, home to multi-national tenants based here to service their Latin American businesses. They are not large users of office space. Typically, they will occupy 1,500 to 2,500 SF. Some landlords are aware of this requirement and have tailored their marketing programs in this direction. Other landlords, many on Brickell Avenue and Downtown are still looking for full floor tenants. Most of these will be large regional law firms that continue to see opportunities to locate to Miami/Coral Gables to service their international clients in Latin America.
So, where are we and where are we going, and better yet, how do we get there? First, with few exceptions, new tenants to the market are going to be few and far between. Landlords will have to offer huge concessions to attract them. These will take the form of free rent, moving allowances and generous tenant improvement budgets. A bit of history here, as the landlord’s representative in the Texaco Latin America-West Africa division lease for 72,000 SF in Coral Gables twenty five years ago, the lease provided an 18 month rental abatement on a ten year lease. Plus, turnkey tenant improvements and free parking! The effective rate was in the mid $20’s/SF and the face rate was in the low $30/SF.
Other that new tenants, landlords have to react to existing tenant needs to retain them. Reduced rents, moving base year operating expenses pass-thrus and rent abatement will be the order of the day. Otherwise we will see a massive game of “musical chairs” throughout the market. With tenants moving from one building to the next for lower rents.
We will get “there” by having leasing professionals, landlord and tenant representatives educate and inform landlords on the market conditions that will require them to be receptive, creative and realistic to the current market circumstances. Those that do, will enjoy reasonably full buildings, others will suffer vacancies of up to 50%! Remember, those in the business of office leasing have to believe the glass is half full and will stay that way.
CALL US: WE KNOW HOW TO KEEP THE GLASS HALF FULL
To view the 2009 Office Market Report go to www.dixoncommercialre.com click on 2009 Office Report
By: Steve Magenheimer
