South Florida office market stronger than pre-pandemic years, JLL says

Although there are significantly less lease deals taking place, South Florida’s office market is on a stronger footing than it was prior to the pandemic, a lead broker with JLL said.

“We are at about a 20% slower rate of deal flow from last year,” said Steven Hurwitz, managing director and agency lead for JLL’s South Florida brokerage. “That said, there is still a very healthy amount of in bound-businesses.”

During the pandemic, high-income households migrated to South Florida from other parts of the U.S., including business owners and company executives. This followed a surge in office leasing activity, particularly within trophy or Class A office buildings, in which rents climbed to record highs.

But now, some companies are cutting back on office space as they brace for an economic slowdown. A recent report from brokerage Lee & Associates even stated that South Florida office rents have peaked as landlords focus on renewing their existing tenants.

Hurwitz said the pandemic supercharged office demand in South Florida. And even though the market is quieter now, there’s still more office deals involving out-of-state companies than there was prior to 2020.

“We had such a mad rush for office space in 2021 and 2022, so even though things have slowed, the pace of new-to-market activity still outpaces what it was pre-Covid,” Hurwitz said.

Indeed, the strength of South Florida’s residential market is an indicator that South Florida is still a popular destination.

“We have been very fortunate that people want to come down here. That they continue to move down here,” Hurwitz said.

That continued migration of people, companies, and wealth has encouraged some developers to build more office space in the tri-county area. Within Miami-Dade County alone, 1.4 million square feet of new office space is being built, a recent market report from JLL stated. That includes 830 Brickell, an office trophy tower in Miami’s Brickell Financial District that expected to be finished in early 2024. Most of 830 Brickell’s office space has been pre-leased by companies such as Citadel, Microsoft, and Kirkland & Ellis.

But Hurwitz said there won’t be an over-abundance of office space in South Florida since most of it won’t come on-line this year. As for office projects that have yet to break ground, they may not get built at all.

“I think we have a healthy pipeline of development,” Hurwitz said. “…It takes a long time in this challenging environment to build, buy, or finance office buildings.”

The vacancy rate in Miami-Dade has increased year-over-year by 50 basis points to 16.3% in the third quarter. However, office rents continue to climb – up 16.5% year-over-year to $59.46 per square foot, according to JLL’s report.

“If you look at Class A office rates they have grown substantially in the last five years to the highest amount they have ever been,” Hurwitz said.

The office market has been particularly strong in Miami’s Brickell and Wynwood areas where rents are above $90 a square foot, he said. And as office rents continue to rise in Brickell, local businesses have relocated to more affordable places such as Miami’s downtown, Coral Gables, and places adjacent to Miami International Airport, he added.

In Palm Beach, the vacancy rate was 12% in the third quarter, the lowest in all of Florida, a JLL report on that county’s office market stated. Nevertheless, Palm Beach’s Q3 2023 vacancy rate is 230 basis points higher than last year’s. The main contributor of Palm Beach’s vacancy rate jump was the North Boca Raton submarket where Office Depot vacated 260,000 square feet of workspace following the $104 million sale of its headquarters. In addition, medical equipment supplier MobileHealth departed 50,000 square feet of office at 5050 Conference Way N., the report added.

As for office rents they went up 15.6% year-over-year in Palm Beach County to an average of $53.32 per square foot in the third quarter. In downtown West Palm Beach, a favored location for financial services companies based in the northeast U.S. and the Midwest, office rents went up 30.6% year-over-year. In the ultra-wealthy island of Palm Beach Island, which has attracted private family offices, rents shot up 43.7%.

“Palm Beach is doing great… It’s a very, very strong market,” Hurwitz said.

Downtown Fort Lauderdale is a pretty healthy market as well, with asking rents averaging $54.06 per square foot. The rest of Broward, though, is still weak compared to Miami-Dade and Palm Beach counties, Hurwitz said. Still, Broward’s asking rents increased 4% year-over-year to an average of $39.09 per square foot, and its vacancy rate fell by 30 basis points from the last quarter to 16.6%.

Yet, vacancies could rise in Broward as companies reassess the size of their footprints due to economic headwinds, the JLL report cautioned.