Office tenants with near-term (next 12–18 months) needs are facing the most challenging economic conditions in years. Rents are at an all time high and rate quotes can yield occupancy cost increases in the 30% to 50% range. Asking class A space rates have reached the $50 per sf mark, a watershed level for Miami, though no deal has yet been signed at these numbers. Faced with such grim prospects, users are reevaluating their need for high profile space with the Brickell address and eyeing alternatives in the less impacted suburban markets of West Miami-Dade. Such a move can yield savings of $10 to $15 per sf when total occupancy costs are considered. Difficult market realities merit strong measures and out-of-the-box thinking, and tenants are doing just that, leaving no stone unturned in the quest for reasonable solutions to record high rental rates.

Conversely, those tenants who have managed to avoid the near-term "pinch-point" in the market with lease expirations subsequent to early to mid 2010 are experiencing the start of unbridled competition for occupants in any one of three class A projects under development in the CBD, and totaling some 1.8 million sf. By our measure, this construction will expand the CBD's class A inventory more than 25%, an unprecedented rise unaccompanied by even modest pre-leasing. The result? Full-service rental rates for large users at levels below $40 per sf and concession packages of over $80 per sf. Developers not willing to proffer competing terms at what is viewed as "early in the game" risk losing signature deals in the market in hopes that the competitive landscape is less aggressive a year or more from now. This is a difficult choice given present economic forecasts and consumer confidence levels at historic lows.

Given these circumstances, the question clients are asking most often is "should we wait?" The answer is perhaps, and probably, yes, if timing permits. That said, astute landlords are becoming more aggressive in attempts to shore up rent rolls before the competition for tenants reaches ruinous levels. When the facts of a tenant's departure are studied without emotion, it becomes clear that a reasonable, maybe even a favorable new deal or renewal makes sense in consideration of the alternative.

There is no doubt that the Miami office market will correct itself, and we predict rental rate declines of 20% and above in the CBD as corporate demand continues to slow and the specter of a substantial increase in supply looms large on the horizon.

The views expressed here are those of the author and not of Real Estate Media or its publications.

Robert G. Orban is senior vice president and co-branch manager of Studley's South Florida office. Studley is an international commercial real estate services firm that specializes in tenant representation. Orban can be reached at [email protected].