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OFFICE
Southeast Florida Metros Q2/19
Vacancies and Rents Improve Even as Development
Expands in Some Southeast Florida Markets Office 2019 Outlook
Y-O-Y
After moderated period, construction ramps up in West Palm Metro Vacancy Basis Point Average Y-O-Y
Asking Rent Change
Beach and Fort Lauderdale while fundamentals carry momentum. Change
A subdued development pipeline and consistent demand for space has
substantially improved office operations in West Palm Beach over the Miami 12.7% -10 $35.81 2.4%
past several years. The market’s vacancy rate has dropped from a cycle
high of 20.7 percent in 2010 to under 14.0 percent this year, the most
Fort Lauderdale 12.9% 0 $29.75 4.6%
substantive recovery in the region. Availability will decline sharply
again in 2019 despite a year-over-year rise in deliveries, as the metro’s
largest completions are already fully leased. A similar expansion to the West Palm Beach 13.4% -70 $30.46 4.4%
construction pipeline in Fort Lauderdale will hold vacancy flat this year
but not impede rent growth. Monthly rates are appreciating at a rapid
clip here as biotech and business development companies like Ultimate
Software absorb more space.
Investment Trends
Fewer arrivals pave way for rent growth in Miami. In contrast to the
rest of Southeast Florida, the development pipeline in Miami is con-
Miami
tracting this year. Although deliveries will still surpass 1 million square • Greater interest from institutional investors translated into several
feet, ongoing leasing by healthcare companies, coworking enterprises recent high-caliber trades in Downtown Miami and nearby Brickell.
and business services firms sustains demand. Availability will dip this Initial returns for these assets were in the mid-4 percent zone.
year following a supply-driven increase in 2018, with vacancy partic-
• Trade volume improved year over year in Kendall as multiple Class B
ularly tight in Miami City, West Miami and Medley/Hialeah. A strong
and C assets changed hands for under $10 million with cap rates in the
interest in occupying office space in these and other submarkets bodes
high-6 to high-7 percent range, above the high-5 percent metro average.
well for rent growth this year, even though asking rates are already some
of the highest in the state of Florida.
Fort Lauderdale
• Private investors have been more active than institutions so far this
year as regionally low entry costs attracted parties from outside the
Local Office Yield Trends market. Sales activity rose notably in Pompano Beach as buyers pur-
sued Class B assets with mid-6 to mid-7 percent initial yields.
9.0%
West Palm Beach
7.5% • West Palm Beach investors focus on business hubs in Boca Raton,
Delray Beach and other areas to obtain properties with high-credit
6.0% tenants as the metro lacks a prominent central business district.
* 01 03 05 07 09 11 13 15 17 19*
• Buyers targeting regionally high yields have pursued opportunities
in North Palm Beach. Post 1980-built, sub-30,000-square-foot assets
Sales Trends have traded recently with cap rates in the 7 to 8 percent zone.
Sales Price Growth
* Cap rates trailing 12 months through 1Q19
er Square Foot
Sources: CoStar$340
Group, Inc.; Real Capital Analytics 30%
Year-over-Y
$255 15%
MIAMI
Employment Trends
EMPLOYMENT
Local Office Yield Trends
Employment Growth Office-Using Emp. Growth 2.2% increase in total employment Y-O-Y
10% 12.0%
• Employment growth expanded year over year in March with the
Year-over-Year Change
5% 10.5% creation of 25,700 new jobs, 7,600 more positions than were added
to the market during the 12-month period ended in March 2018.
Average Rate
0% 9.0%
• Hiring over the past four quarters was led by the professional and
businesses services sector as about 8,600 personnel joined payrolls.
-5% 7.5%
In that same span, the construction sector grew at the fastest pace,
6.7 percent, between March 2018 and March 2019.
-10% 6.0%
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07 09 11 13 15 17 19*
$340 30%
• The development pipeline approximately doubled compared with a
Year-over-Year Growth
Square Feet (millions)
3
$255 year ago as an additional 863,000 square
15% feet was delivered over the
5%
• The average asking rent ended the first quarter at $34.94 per square
foot, up 2.3 percent from a year ago. Monthly rates advanced the
0%
most, by 7.9 percent, in the Brickell submarket. The waterfront office
district just south of downtown commands the metro’s highest rents.
-5%
• Oceanfront submarkets reported above-market rent growth for the
-10% past four quarters. Asking rates appreciated by 3.5 and 4.0 percent in
09 10 11 12 13 14 15 16 17 18 19*
Coconut Grove and the Biscayne Corridor.
* Forecast
Source: CoStar Group, Inc.
Demographic Highlights
2019 Forecast Job growth Population Age 20-34* Sq. Ft. Per Office Worker*
13.2% Urban
2019 Office-Using Job growth Population of Age 25+ U.S. Average 32.0%
West Miami 5% 2.9% 160 $23.82 -0.7% 10.5% returns have remained stable over the past three years,
• While initial
Average Rate
$340 30%
Year-over-Year Growth
Square Feet (millions)
* Includes submarkets with more than 100,000 square feet of inventory * Trailing 12 months through 1Q19 over previous time period
Sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
FORT LAUDERDALE
5% 10.5% past four quarters, about 600 more jobs than were created during
the previous annual period.
Average Rate
0% 9.0%
• Employment growth was higher among traditionally office-using
professions at a 3.2 percent annual increase in March. Over that
-5% 7.5%
time, the professional and business services and the education and
-10% 6.0% health services sectors hired a combined 9,000 individuals.
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07 09 11 13 15 17 19*
$240 30%
Year-over-Year Growth
Square Feet (millions)
1.5
$180 as construction activity increased in Cypress
15% Creek, Northwest
0
Broward/Coral Springs and Southwest Broward County.
$120 0%
• Major deliveries to the metro since March 2018 include a pair of
-1.5 $60 medical office properties, the 81,700-square-foot
-15% Cypress Creek
Medical Pavilion and the Cleveland Clinic in Coral Springs, which
-3.0 $0 -30%
09 10 11 12 13 14 15 16 17 18 19*
spans 63,360 square feet.
09 10 11 12 13 14 15 16 17 18 19*
18%
• The metrowide vacancy rate dipped down to 13.0 percent year
Vacancy Rate
5%
• The average marketed rental rate improved by the highest margin in
more than a decade to $28.91 per square foot in March. A year ago,
0%
rents had appreciated by 3.1 percent on average.
* Forecast
Source: CoStar Group, Inc.
Demographic Highlights
2019 Forecast Job growth Population Age 20-34* Sq. Ft. Per Office Worker*
12.6% Urban
2019 Office-Using Job growth Population of Age 25+ U.S. Average 32.0%
5%
Southwest Broward 8.0% 100 $30.34 5.0% • More Class B and C office sales contributed to an overall slower rate
10.5%
Average Rate
of price appreciation over the past four quarters. The metro’s average
0% 9.0%
Hollywood 9.1% -220 $28.02 -2.1% sale price rose 1.4 percent to $219 per square foot in March, while the
average cap rate dipped into the mid-6 percent band.
-5% 7.5%
Pompano Beach 11.5% -120 $23.26 2.8%
Outlook: Capital-constrained investors from Miami may look toward Fort
-10% Lauderdale due
6.0% to comparatively lower entry costs and an average 70-ba-
Sawgrass Park 09 1011.9%
11 12 -570
13 14 $30.01
15 16 17 10.4%
18 19*
sis-point difference in01first-year
03 05 07
yields. 09 11 13 15 17 19*
Northwest Broward/
12.9% -270 $25.79 8.1%
Coral Springs
Office Supply and Demand Sales Trends
City of Fort Lauderdale 13.1%
Completions 30 $25.36
Absorption 7.2% Sales Price Growth
3.0
Average Price per Square Foot
$240 30%
Plantation 13.7% 320 $28.82 9.0%
Year-over-Year Growth
Square Feet (millions)
1.5
$180 15%
Downtown Fort Lauderdale 16.5% 60 $41.58 15.1%
0
$120 0%
Cypress Creek 18.4% 0 $25.21 6.3%
-1.5 $60 -15%
* Includes all submarkets with at least 2 million square feet of inventory * Trailing 12 months through 1Q19 over previous time period
Sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
WEST PALM BEACH
Employment Trends
EMPLOYMENT
Local Office Yield Trends
Employment Growth Office-Using Emp. Growth 2.6% increase in total employment Y-O-Y
10% 12.0%
• Over the 12-month period ended in March, approximately 16,000
Year-over-Year Change
5% 10.5% jobs were created, almost double the previous annual period when
Average Rate
about 8,300 personnel were added to payrolls. The professional
0% 9.0% and business services sector led hiring over the past four quarters,
expanding by 5,900 workers.
-5% 7.5%
• Greater employment growth contributed to a 20-basis-point decline
in the unemployment rate to 3.6 percent, matching the U.S. level.
-10% 6.0%
09 10 11 12 13 14 15 16 17 18 19* 01 03 05 07 09 11 13 15 17 19*
$300 30%
• The pace of development quickened over the past year to achieve
Year-over-Year Growth
Square Feet (millions)
0.7
$225 a cycle high. Construction activity was
15% focused on Delray Beach
5%
• The metro’s average marketed rent improved by a similar margin to a
year ago to reach $29.80 per square foot. Monthly rates advanced the
0%
most in the Delray Beach and Palm Springs/Lake Worth submarkets.
-5% • Boca Raton and North Palm Beach both demonstrated above-market
rent growth, facilitated by falling vacancy and a lack of recent com-
-10% pletions. Asking rates remain highest for properties on Palm Beach
09 10 11 12 13 14 15 16 17 18 19*
island, where financial services firms have been leasing space.
* Forecast
Source: CoStar Group, Inc.
Demographic Highlights
2019 Forecast Job growth Population Age 20-34* Sq. Ft. Per Office Worker*
57.2% Urban
2019 Office-Using Job growth Population of Age 25+ U.S. Average 32.0%
5% 10.5%
• Price appreciation prompted a 30-basis-point annual dip in the aver-
Royal Palm Beach/Wellington 5.0% -390 $25.85 -8.8%
Average Rate
age cap rate to the mid-to-high 6 percent band. Initial returns exceed
0% 9.0%
Palm Springs/Lake Worth 7.1% -450 $24.40 10.8% those found in Miami and remain about on par with Fort Lauderdale.
$300 30%
City of West Palm Beach 13.7% -120 $28.85 1.0%
Year-over-Year Growth
Square Feet (millions)
0.7
$225 15%
Boynton/Lantana 14.4% 0 $26.21 2.1%
0
$150 0%
Boca Raton 16.5% -80 $30.78 4.5%
-0.7 $75 -15%
Overall Metro 13.7% -90 $29.80 2.3%
-1.4 $0 -30%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
Columbus Office:
230 West Street, Suite 100
Columbus, OH 43215
(614) 360-9800
Austin Office:
1Q19* Craig
OfficeSwanson Vice President/Regional Manager
Acquisitions
9600 North Mopac Expressway, Suite 300 CAPITAL MARKETS
Cincinnati Office:
By Buyer
Austin, Type
TX 78759
(512) 338-7800 | craig.swanson@marcusmillichap.com Colby Haugness Regional Manager
Cross-Border, By600DAVID G.10th
Vine Street, SHILLINGTON,
Floor President,
11.6% Cincinnati, OH 45202
Marcus & Millichap Capital Corporation
(513) 878-7700 | colby.haugness@marcusmillichap.com
Other, 6.0%
Equity Fund • Ongoing trade concerns weigh on growth outlook; Fed plots next
& Institutions, 32.9% steps. Amid rising trade tensions between the U.S. and China and
Baltimore Office: Tim
slowingSpeckglobal growth,
First Vice the outlook
President/District has turned more cautious. Mar-
Manager
tim.speck@marcusmillichap.com
Matthew Drane Regional Manager ket volatility, along with a flight to safety trade, has flattened the
100 E. Pratt St., Suite 2114 Dallas
yieldOffice:
curve dramatically, with the 10-Year Treasury trading below
Private, 45.1% Baltimore, MD 21202 5001 Spring Valley Road, Suite 100W
Listed/REITs, 4.4%
Tel: (202) 536-3700 | matthew.drane@marcusmillichap.com 2.2 percent.
Dallas, TX 75244 This has pushed the broader yield curve into inversion,
a closely
(972) watched precursor to a potential recession. Meanwhile,
755-5200
many
Fort measures
Worth Office: of the domestic economy remain buoyant, includ-
Office Mortgage Originations ingThrockmorton
300 continuedStreet,job and
Suitewage
1500 growth, historically low unemployment
Fort Worth, TX 76102
By Lender and932-6100
(817) muted inflationary pressure. These conditions have prompted
Boston Office:
a dichotomy, with Federal Reserve officials signaling more accom-
100%
John Horowitz First Vice President/Regional Manager modative policies. The impending end of quantitative tightening in
Percent of Dollar Volume
For information on national officeRichard Matricaria Executive Vice President of Investment Brokerage
trends, contact: Rene H. Palsenbarg Regional Manager
333 West Wacker Drive, Suite 200, Chicago, IL 60606 10180 101 Street, Suite 3400
John Chang (312) 327-5400 | richard.matricaria@marcusmillichap.com Edmonton, Alberta T5J 3S4
Senior Vice President, National Director | Research Services (604) 675-5200 | rene.palsenbarg@marcusmillichap.com
David Bradley Regional Manager | Chicago Downtown
Tel: (602) 707-9700 | john.chang@marcusmillichap.com
333 West Wacker Drive, Suite 200, Chicago, IL 60606
Indianapolis Office: Miami Office:
(312) 327-5479 | david.bradley@marcusmillichap.com Encino Office:
Price: $250
Josh Caruana
Steven WeinstockVice President/Regional Manager
First Vice President/Regional Manager Scott Lunine Vice President/Regional Manager
600 E. 96th
One Street, Suite
Mid America 500
Plaza Suite 200 Jim Markel
5201 Blue LagoonVice President/Regional
Drive, Suite 100 Manager
Indianapolis, IN 46240
Oakbrook Terrace, IL 60181 16830
Miami,Ventura Boulevard, Suite 100
FL 33126
© Marcus & Millichap 2019 | www.MarcusMillichap.com
(317) 218-5300
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The information contained in this report was obtained from sources deemed to be reliable. Every Fort Lauderdale Office:
effort was made to obtain accurateCincinnati Office:
and complete information; however, no representation, warranty
Ryan Nee District Manager
or guarantee, express or implied, may be made as to the accuracy or reliability of the information 5900 N. Andrews Avenue, Suite 100
Colby Haugness Regional Manager Milwaukee Office:
contained herein. Note: Metro-level600employment growth is calculated based on the last month of the Ft. Lauderdale, FL 33309
KansasVine
CityStreet, 10th Floor
Office:
(954) 245-3400 | ryan.nee@marcusmillichap.com
quarter/year. Sales data includes transactions valued
Cincinnati, OH at $1,000,000 and greater unless otherwise
45202 Todd Lindblom Regional Manager
noted. This is not intended to be Richard
a forecast ofMatricaria
(513) 878-7700
future| colby.haugness@marcusmillichap.com
events andSr. this
ViceisPresident/Division
not a guaranty regarding
Managera 13890 Bishops Drive, Suite 300
future event. This is not intended7400 Collegespecific
to provide Boulevard, Suite 105
investment advice and should not be considered Brookfield, WI 53005
Overland Park, KS 66210 (262) 364-1900 | todd.lindblom@marcusmillichap.com
as investment advice.
(816) 410-1010 | richard.matricaria@marcusmillichap.com
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.;
Experian; Moody’s Analytics; Real Capital Analytics; TWR/Dodge Pipeline; U.S. Census Bureau