Vacancies have been dropping since the first quarter of 2004. In that time period, the vacancy rate has plunged from 15.5% to 7.7%. "The Miami office market is strengthening and will soon reach rental rates never before seen in our city," says CB Richard Ellis managing director Scott Sime. "As insurance premiums and operating expenses increase, we are beginning to see tenants move to quality buildings owned by institutions."

With 1.1 million sf of net absorption over the year and 279,410 sf of space removed from the market due to office condo conversion, asking rental rates broke the $26-per-sf mark as options for tenants continue to be limited. In the Central Business District, asking rents have risen $1.49 per sf from Q4 2005 with the most significant change in class A space which experienced a jump of $3.62 per sf. The suburban markets also saw rental rate increases of $1.45 per sf with Coral Gables, Airport West and Miami Beach experiencing the highest increases, according to the report.

With rental rates continuing to increase, operating expenses continue to increase from the previous year. Expenses are now averaging close to $15 per sf, versus $12 per sf two years ago.

Office condo conversions are continuing to be pursued by developers. The conversion of Royal Palm, a 122,000-sf building in the Airport West submarket, is under way. Miami Green, the first LEED-certified office condo building planned for Miami, broke ground in December. Developers are also continuing to pursue new office development. The 130,000-sf Doral Costa office project in the Airport West submarket is expected to be completed in the first quarter, while groundbreakings for office projects at 2222 Biscayne Blvd. and 3333 Biscayne Blvd. are expected to occur in 2007.