Miami’s Office Market Gaining Strength

Miami’s office market will gain strength in 2011 as the demand for space continues to rise. Rents will increase and construction will slow. So says a new report from Marcus & Millichap.

The picture would be brighter if it nearly 1 million square feet of new office space didn’t come online in 2010. Indeed, the high-vacancy buildings that came online last year are skewing the numbers. The unfilled space pushed up vacancy by over 500 basis points in the Downtown and Brickell areas, while the rate declined in more than half of the other submarkets, M&M reports.

“As we go through the year we will see a more positive story across the board,” Tere Blanca, president and CEO of Blanca Commercial Real Estate, tells GlobeSt.com. Blanca manages 1450 Brickell, which is gaining ground with 65% occupancy after a year on the market. “I’m an optimist,” Blanca says, “but Miami has always proven me right.”

The numbers seem to back Blanca up. On the job front, accelerating employment will generate positive net absorption of 400,000 square feet countywide this year, though the total could rise to more than 1 million square feet depending on how quickly the two new buildings fill.

Leasing remains slow, M&M confirms, but the market’s status as an international gateway attracts a wide range of prospective tenants and offers a reasonable chance of significantly reducing vacancy in these buildings. There is one caveat, though: 600 Brickell.

600 Brickell scored a $130 million senior construction loan in February to finish its 40-story class A office tower. The building is scheduled to come online later this year, adding another 600,000 square feet of empty office space to the Central Business District.

Marcus & Millichap expects the pace of transactions to increase this year access to credit improves and many owners who put off estate- or partnership-related dispositions seek to capitalize on strengthening investor demand. Downward pressure on rents stemming from near-term lease rollovers could affect asset valuations in some properties, M&M says, but average cap rates continue to settle in a range from 7 percent to 8 percent.