The Miami office market continues to benefit from steady demand via strong growth in office-using employment. Specifically, job growth in the Professional and Business Services sectors outpaced the national average in 2017. Due to years of limited development and strong demand, vacancies have remained near cyclical lows.

Developers were active in 2017, delivering almost 750,000 SF of new office space. Even with the uptick in development, vacancies remain flat, leaving Miami in a good spot to tackle another wave of deliveries set to hit the market in the next few years.

Due to strong fundamentals this cycle, rent growth reached almost 8% in early 2016 but has since declined, mirroring a nationwide trend. Sales volume has dipped off recently after peaking to almost $2.2 billion in 2016, but it is still in line with the historical average.


Office-using employment this cycle has been driven by the Professional and Business Services sector, particularly those that cater to wealthy retirees. Absorption reached the highest levels of the cycle in 2014 and 2015 but has decelerated since. While most of the recent leases are for 30,000 SF or smaller, there have been a few notable lease deals that have occurred over the past few quarters. In late 2017, FEMA signed a lease for over 90,000 SF of 3 Star office space, followed by Florida Blue, who is taking over 50,000 SF. Leases signed so far in 2018 have been smaller, the largest being 23,000 SF taken by law firm Duane Morris.

Employment within the healthcare industry has been robust enough to support continued medical office leasing. Further supporting this trend is the rapid employment growth within the outpatient subsector of the healthcare industry, which reflects the increasing patient preference for medical services outside of the traditional hospital setting. These medical tenants typically favor 3 Star product in medical office buildings and locations within the premier suburban submarkets, near wealthy residences and the University of Miami. Submarkets such as Kendall, South Miami and Aventura see the lion’s share of this activity, and as the population ages and demand for healthcare grows, medical office leasing should further drive demand, particularly in these submarkets.

Strong demand has finally made an impact on top quality asset fundamentals. For a large portion of the recovery, 4 & 5 Star product remained stubbornly vacant due to the supply wave that hit the market during the recession years. However, strong absorption has helped bring down Miami’s 4 & 5 Star vacancy rate by almost 800 basis points since the beginning of the cycle. Two and Three Brickell City Centre hit the market in 2017, and multiple corporate office and medical office buildings have completed in Aventura and Coral Gables in the first half of 2018. Multiple 4 & 5 Star buildings are set to deliver over the next few quarters, some of which have major availability, but Miami’s pattern of strong demand is expected to continue to keep vacancies under control in the near term.


Rent growth hit a cyclical high at the beginning of 2016 but has since decelerated, partially due to one of the strongest years of deliveries this cycle. Even so, rent growth in Miami is almost double the national average, and rents are among the highest in the southeast. The combination of consistent, healthy rent increases of 4 & 5 Star rents, which are already among the highest in the national index, brightens the outlook in Miami.

The bulk of rent growth in the metro was carried by the Miami Airport and Kendall Submarkets. While the highest overall asking rents are still commanded by Brickell and Aventura, the growth in areas like Kendall and Miami Airport has proven that there is growing demand for suburban office space in Miami. With Brickell becoming price-prohibitive for an increasing number of potential tenants, the prospects in secondary office hubs, such as Downtown Dadeland and the emerging CityPlace Doral, have gained significant attention.


Office construction has returned in force to the Miami metro. The supply pipeline was relatively empty leading up to 2016, when over 500,000 SF delivered, and that momentum has since been maintained. About 800,000 SF of new office space came on line metrowide in 2017, and over a million SF are expected to deliver by the end of 2018. Two MiamiCentral and Three MiamiCentral, the office phases of the mixed-use development centered on the future All Aboard Florida passenger rail station, are adding more than 300,000 SF of office space to the Downtown Miami Submarket. And several corporate office and medical office buildings completed in Aventura and Coral Gables in the first half of 2018. The majority of new office additions in the urban core have been components of larger mixed-use projects. Pure office tower projects are seen more in the suburbs. The arts district of Wynwood which is situated north of downtown Miami, has seen a boom in office construction since the area was rezoned in 2015. Coral Gables has also seen active development around the Miracle Mile. It currently has more square feet under construction than any other submarket. 


Due to surging land costs, ground-up opportunities are pricey, and investments in existing buildings have become more common in Miami. After seven consecutive years of sales volume increase, total sales volume dropped off in 2017. The largest trade of 2017 was in June, when a major transaction occurred with CBRE Global Investors’ acquisition of 1111 Lincoln Rd. The 4 Star, nearly 150,000-SF office building was purchased for more than $160 million. The property sold as part of a portfolio sale that included the adjacent 300-space parking garage and specialty building, as well as two lots of land. A more recent trade was the sale of the Sabadell Financial Center in June 2018. The 500,000-SF, Class

A office tower sold to Kohlberg Kravis Roberts & Co for $248.5 million (475/SF), and the sale generated a 4.8% cap rate.

Even in suburban submarkets, high-quality assets are trading for a premium. For example, One Park Square at Doral was purchased in September 2017 by TA Realty for $96.1 million, or $341/SF. At the time of sale, the property was approximately 80% leased, with asking rents over $36/SF. This was a strong gain from what the seller, New Boston Fund, paid for the property in 2010, when the property was almost fully vacant.


Growing international connections have established Miami as a diverse and global city, which has benefited all facets of the economy. The local economy has improved significantly since the Great Recession. With over 250,000 jobs added since recession lows, employment growth has outperformed the national average for over five years and is expected to outpace the U.S. rate for most of the five-year forecast.

Recent move-ins from global tech giants like Uber, Expedia, and Twitter speak to Miami’s growing appeal as a diverse and creative hub for innovative firms and workers. In particular, Miami is attractive to global companies active in Spanish-speaking parts of the world. Univision, Telemundo, and UniMás, three of the largest Spanish-speaking cable networks in the U.S., have established large-scale operations in Miami. Growing appeal among multinational and tech firms has also helped Miami draw in more entrepreneurs and venture capitalists, making the city one of the top metropolitan areas in the country for startup activity.

International trade is a strong driver of Miami’s economy. Miami’s top trading partners are South America, Central America and the Caribbean. PortMiami and the Miami International Airport are the metro’s major hubs. Total trade by value through PortMiami ranks 12th among all containerized seaports in the U.S., and MIA ranks 5th among all airports, according to the county’s most recent international trade report. Also, the Port recently completed more than $1 billion dollars in infrastructure improvements including a deep dredging project which will allow access to larger, Post-Panamax size ships. It is expected that these improvements will help expand two-way trade with Asia via the Panama Canal.

Miami gets a significant amount of attention from foreign investors and sees over twice as much foreign investment as its neighbors Fort Lauderdale and Palm Beach. Between 2011 and 2017, the Miami metro had approximately $28 billion in commercial real estate transactions. Of that, 20%, or $4.5 billion, was from foreign investors. The majority of investment comes from Europe, specifically German investors such as KanAm Group, which prefer to invest in office space. After Germany, the most investment comes from Latin America, which makes sense given their familiarity with the U.S. market. Canadian and Middle Eastern investors are most interested in the multifamily space, whereas Asian countries and Japan invest primarily in office.

Latin American investors take a stronger interest in Miami than in most other major metros. Miami ranks second after New York City for Latin American investment in office space, and fifth for Latin American investment in retail space. Latin American investment equated to approximately $305 million in office space and $135 million in retail space in this seven-year period, with minimal investments in apartment or warehouse space.

The biggest industry sector in Miami is trade, transportation, and utilities, accounting for 25% of the metro’s jobs and adding 60,000 new jobs since 2010. While employment in Miami is traditionally driven by low wage industries in the trade, transportation, and utilities and leisure and hospitality sectors, employment growth is becoming more diverse. For example, job growth in business services and education and health services, two of the highest-paying sectors in Miami, have witnessed some of the strongest gains over the cycle, with total employment more than 15% above its prerecession peak. As a result of these factors, median household income growth is currently quite strong. The number of workers employed in construction has been rising over the last seven years, driven in part by the highest condo and apartment construction levels since before the recession. Even though we’ve been seeing positive growth within the construction industry, the metro has yet to hit its prerecession peak. Household income for Miami, like in much of Florida, is well below the national average, and this gap is likely to remain as long as leisure and hospitality jobs dominate. That said, the positive rate of income growth along with low unemployment paint a positive picture for this metro in the near term.


Source: This is an excerpt from a CoStar Copyrighted report licensed to Diaz Commercial – 545617.