South Florida Office Market Feels Demand Chill

Vacancy rates rose 20 base points from the previous quarter, negative net absorption totaled more than 81,000 square feet and the South Florida office market saw supply outpace demand for the first time since Q4 of 2018, according to a report by Newmark Knight Frank.

Broward and Miami-Dade Counties reported negative absorption, while Palm Beach County was the only county to report positive net absorption.

Despite this, landlords were able to minimally increase asking rates, increasing costs by $1.05 per square foot year over year for an all-time high of $34.32 per square foot. At the close of the quarter, 2.2 million square feet of sublet space was on the market, up slightly from Q4 of 2019 but below the 2.3 million that was available at the same time in 2019.

Leasing activity matched Q1 of 2019 with 1.7 million square feet of deals inked in Q1 of 2020. Most of that activity came from renewals and relocations, the report said.

The financial sector was the most active in mid-to-large leasing transactions, totalling 150,000 square feet. The medical device sector was next with 135,000 square feet while business and professional services accounted for 60,000 square feet of transaction activity.

Investment sales saw 13 deals totalling 637,000 square feet get done in Q1 of 2020, with a combined value of $157.7 million. This was a significant drop from the 2.1 million square feet that sold for $361 million during the same period in 2019.

Overall, the report said the market was entering a shift, moving away from a growth phase and into a more “balanced approach between supply and demand”, the report said.

The report said that the effects of COVID-19 had yet to be seen, but the expectation is that by mid-year, the market could see significant change.