FT.LAUDERDALE,FLA.-In Broward County, Fla., home to Ft.Lauderdale, moderating job losses are expected to ease the rate oferosion in office property fundamentals, even as the vacancy ratewill top 21% and rents are falling for the second consecutive year,according to a Marcus & Millichap office market report entitled“Broward County Gradually Progresses to Recovery.”

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But the operative word in this report may be “gradually,”because every Broward County submarket continues to be affected bythe recession. Not only are there few office property sales, theones which have occurred are for small properties.

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“There haven’t been a lot of sales,” says Douglas Mandel, vicepresident for investments at Marcus & Millichap Ft. Lauderdale.One of the few examples he noted was that of the 32,000-square-foot“Allstate building,” named for the former occupant, in Margate, aFt. Lauderdale suburb, which was purchased by a user in Februaryfor $3.2 million or $100 per square foot.

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“We are going to see more of the same,” says Mandel, referringto the dearth of office property sales. “There is not a lot ofinventory in Broward, because some people are not in a position tosell. With a lot of assets, the market value, would be below thedebt value, so financially the owners can’t sell,” he says.

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“While a lot of assets are covering the debt service today,”says Mandel, in some cases, there is a pending vacancy at the endof a lease. “ When that tenant leaves, the owner won’t be able tomake the debt service,” he says.

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In one case, says Mandel, a tenant occupies 50% of a200,000-square-foot-building, which he declined to name, and thetenant is leaving at the end of the lease term. One of the problemswith this, he says, is that the current tenant is paying what wouldbe considered above-market rents today. A lease signed for a lowerrent will affect the value of the asset, says Mandel.

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While there is leasing activity, says Mandel, rents in BrowardCounty have dropped as much as 30% drop in some cases. Then, thereis the question of whether or not rent concessions and tenantimprovements are factored in to rental rates, he says.

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Some tenants are negotiating three year leases today, saysMandel. “But prudent tenants will request 10-year leases,” to takeadvantage of lower rates. Landlords would prefer shorter termleases at these “discounted” rates, says Mandel.

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Landlords often have a lot of tenant improvement expenses whilea tenant may have questionable credit, says Mandel. “If the tenantis not a credit tenant, what do you have?” he asks.

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According to Marcus & Millichap research, there are 34million square feet of office space in Broward County, includinguser buildings. Plus, roughly 210,000 square feet will be deliveredin the county in 2010, up from 165,000 square feet last year. Thisis at a time when total employment will decrease by 0.3% with aloss of 2200 positions, and office-using employers will shed 1000jobs in 2010. In 2009, 4500 workers were laid off in thecounty.

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With employment decreasing, office vacancies in Broward Countyare expected to go up in 2010 by 220 basis points to 21.2% andasking rents will decline 5% this year to $24.48 per square footwith a 7% decrease in effective rents to $19.17 per square foot,according to Marcus & Millichap. Last year, asking rentsdecreased by 2.4% and effective rents fell 6.4%.

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