Office tenants with near-term (next 12–18 months) needs arefacing the most challenging economic conditions in years. Rents areat an all time high and rate quotes can yield occupancy costincreases in the 30% to 50% range. Asking class A space rates havereached the $50 per sf mark, a watershed level for Miami, though nodeal has yet been signed at these numbers. Faced with such grimprospects, users are reevaluating their need for high profile spacewith the Brickell address and eyeing alternatives in the lessimpacted suburban markets of West Miami-Dade. Such a move can yieldsavings of $10 to $15 per sf when total occupancy costs areconsidered. Difficult market realities merit strong measures andout-of-the-box thinking, and tenants are doing just that, leavingno stone unturned in the quest for reasonable solutions to recordhigh rental rates.

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

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

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

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

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Robert G. Orban is senior vice president and co-branchmanager of Studley's South Florida office. Studley is aninternational commercial real estate services firm that specializesin tenant representation. Orban can be reached [email protected].

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