New Class A Office Rents Pushing $40 Per SF

"Over the next decade, the entire CBD will be dramatically changed--both physically and demographically, as significant construction and planned development is now under way within and around the Downtown area, stretching north to the Omni and south to Brickell," says Jones Lang LaSalle senior vice president Scott Strickland. He points to the second quarter's 8.74% vacancy in the six-million-sf Downtown submarket and the 11.5% vacancy in the 5.35-million-sf Brickell submarket, both of which reflect sublease space. Class A vacancy Downtown is 6.32%; Brickell's class A space is 8.23% empty. Total vacancy was more than 11% a year ago.

Average class A rents Downtown are $31.46 per sf. Brickell's average quoted rents for class A space are $36.12 per sf. The highest second-quarter quote was $41 per sf at Courvoisier Centre. "If current market conditions prevail, rent growth will continue over the next two years, with larger users being forced to accept creative solutions in their existing buildings," Strickland predicts.

"For the near term, existing landlords will not be facing the threat of new competing office development, setting the stage for further rent growth," Strickland says. No new projects have started in the first half and only 559,000 sf of new product is under way in the seven suburban submarkets totaling 24 million sf.

"Despite escalating operating expenses, buyers and sellers continue to show confidence in class A office product," notes Christopher J. Wasco, an international director at Jones Lang LaSalle. He cites the recent sale of LNR Property Corp.'s headquarters building at 1601 Washington Ave. in Miami Beach's South Beach sector as an example. The structure sold for $449 per sf., "a record for the entire region," Wasco says.

Rising insurance costs, however, are creating problems for some sellers and buyers, according to Wasco. "Particularly for non-institutional office owners, the escalating costs have been at the forefront of concern, with some owners witnessing increases up to 1,000%," he says. "Some of the city's highest operating costs are at mixed-use office buildings along Brickell Avenue."

Wasco's colleague, Strickland, adds that Downtown's revitalization in the housing and retail arenas, is "fueling property values to a significant degree with a plethora of amenities for both office tenants and residents--with office space becoming more valuable for those tenants and investors currently in the marketplace, such as national law firms and banking entities."

As an example of the existing tight CBD office space scenario, Strickland says the largest block of space available over 20,000 sf is a 27,000-sf sublease on the ninth and 10th floors of SunTrust International Center, a 33-year-old, 31-story, 418,916-sf, 89%-leased property. The 30th floor in the 34-story, 782,210-sf Miami Center has 23,450 sf available. This space is the largest block of direct leasing available in the Downtown. The 23-year-old building is 99.1% leased. Bank of America, a 19-year-old, 600,959-sf, 47-story building has 21,000 sf to lease on its 16th floor. The building is 94.5% leased.