FT.LAUDERDALE,FLA.-In Broward County, Fla., home to Ft. Lauderdale, moderating job losses are expected to ease the rate of erosion in office property fundamentals, even as the vacancy rate will 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.”

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

“There haven’t been a lot of sales,” says Douglas Mandel, vice president 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, a Ft. Lauderdale suburb, which was purchased by a user in February for $3.2 million or $100 per square foot.

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

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

In one case, says Mandel, a tenant occupies 50% of a 200,000-square-foot-building, which he declined to name, and the tenant is leaving at the end of the lease term. One of the problems with this, he says, is that the current tenant is paying what would be considered above-market rents today. A lease signed for a lower rent will affect the value of the asset, says Mandel.

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

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

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

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

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