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MIAMI-Office property fundamentals throughout South Florida are improving across the board, according to a just-released study by Marcus & Millichap. As a result, current owners face a “windfall [of competition]…as new buyers seek a foothold in this premier marketplace,” according to Kirk Felici, regional manager in the local Marcus & Millichap office, and Gene Berman, managing director in the company’s Fort Lauderdale office.

While the market continues to import new capital from other geographic markets, investors from other product types are also now seeking the attractive yields and solid performance of office assets, according to the study. Increased activity in the residential condo conversion sector, for example, is reverberating in the local office sector. Some apartment buyers are unwilling to accept the low yields common in the apartment market, and the condo boom is also helping to create new office users from such expanding types of companies as mortgage lenders, title companies and design firms.

Furthermore, the report suggests that the redeployment of building materials and labor to the construction of for-sale housing “probably explains some of the drop in office construction over the past two years.” An estimated 900,000 sf of multi-tenant office space will be completed by year-end 2005. By contrast, an average of more than three million sf came online annually between 1999 and 2003.

This year’s dollar volume of office sales in Fort Lauderdale, Miami and Palm Beach County is expected to approach $2 billion. Consequently, the median price of office assets in South Florida rose 12% to $160 per sf by the end of third quarter, the report states.

For owners and tenants, “the most important change this year has been the slow burning off of concessions,” according to the report. It suggests that office investors and owners can anticipate rent growth in excess of inflation over the next 12 months. However, the degree of growth will vary by class with class B properties appreciating the most. The study projects an increase of 4% in rates for class B office properties in 2005, taking the asking average to just over $22 per sf. Class A product is expected to end the year about 1% over 2004 and rise to an asking average of $27.14 per sf.

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