South Florida’s office values are recalibrating.
From late 2020 through 2022, the tri-county region became a magnet for out-of-state companies, prompting a leasing flurry, record rents and voracious investment sales appetite.
The bonanza pushed up office values to their peak since at least the Great Recession.
Office valuation is one way to gauge a market’s health. In its simplest terms, it determines the worth of a building –– or a group of office buildings in a particular area.
In each of the three South Florida counties, office values dropped from their 2022 peak, according to CoStar Group data, an indication that the tri-county region’s office value boom has ended.
“The market is resetting,” said Juan Arias, CoStar’s South Florida market analytics director. “We had a significant ramp-up in values in 2021 to 2022. But since then, because we had the Fed funds rate increase significantly, pushing up the 10-year [Treasury] rate, we had a little bit of a correction in values. The slowdown in growth of the office sector is now beginning to hit us. That is impacting values since 2023 and currently.”
Miami-Dade and Broward counties recorded more drastic office declines since 2022, while Palm Beach County’s drop was softer, CoStar’s data shows.
Still, CoStar projects an increase in overall South Florida office values after this year.
Palm Beach County’s market is propped up by billionaire Steve Ross making West Palm Beach his playground, primarily turning it into an office mecca. Ross, through his Related Ross, owns nine office buildings in downtown West Palm, including those purchased, developed, planned and under construction. The 85-year-old, who stepped back from New York-based Related Companies he founded over 50 years ago, has tapped into his network to quickly lease his buildings.
“It’s an inorganic market, [where] value is significantly propped up by Ross and what he is doing,” Arias said. “The more typical scenario is what happened with Miami, what happened with Fort Lauderdale and the broader nation, which is we have seen this general readjustment in values. These are more organic markets.”
South Florida office values are still outperforming the national average. And they haven’t dropped to 2018 and 2019 levels, which are considered normal years prior to the pandemic-induced boom and the subsequent slowdown. But a suppression of values from their 2022 peak shows the tri-county region is feeling the sting of economic headwinds.
“Initially, Florida was a bit immune to [higher interest rates] because our economy was doing so much better relatively to the rest of the U.S.,” said broker John Bell of Transwestern. “As time has gone on, the pricing is definitely softening compared to where it was. It was inevitable.”
How is a property valued anyway?
Valuing how much a property is worth is a complex craft. Generally, an appraiser focuses on one building, primarily taking into account comparable sales of similar properties. Other characteristics factor in, such as a building’s age, rents, projected rent increases and vacancies.
To determine the value of office buildings in one area, such as each of the three South Florida counties, CoStar elevates the property specific data to the entire market. It then layers in economic conditions, such as interest rates, employment, gross domestic product data and expectations and other factors, to come up with a quarterly sale price index, Arias said.
This deters from relying solely on comps, which can skew data due to one big sale in a quarter or a lack of sales altogether.
“We are basically valuing all of the properties in a given market, whether they transacted or not,” Arias said. The market price index “is essentially looking at, ‘What if the entire market traded today?”
In Miami-Dade and Broward, CoStar’s office sale price index reached its highest level in the second half of 2022 and then declined, the data shows. In Palm Beach County, the sale price index also peaked in 2022 and then declined in subsequent years, though it rebounded in this year’s second quarter, CoStar’s data shows.
Over the past year, South Florida experienced sporadic office sales at prices below the buildings’ previous purchase prices.
In May, Chicago-based Bradford Allen Investment Advisors bought the 18-story One Clearlake office tower in West Palm Beach for $45 million, a nearly 26 percent discount from its last sale price four years ago. Last year, Starwood Capital Group sold a four-building office portfolio in Miramar for $45 million, or 45 percent less than its sale price in 2015. Also last year, Bridge Investment Group sold the 11-building Sawgrass Technology Park in Sunrise for $49 million, a 34 percent discount from its purchase price in 2019.
These deals indicate the office market is feeling the squeeze from the economic slowdown.
But a few discounted sales aren’t enough to pull down values across the market. Neither is the leveling of in-migration of companies. Experts blame one culprit as the biggest cause of lower values: elevated interest rates.
“The pricing drop is because the cap rates are increasing because they are affected by higher interest rates,” said Bell, the Transwestern broker.
To make sense of where property values stand, he parses out three office categories: under $10 million buildings that continue to trade because they often are all-cash deals or 1031 exchanges; non-trophy big buildings that are experiencing cap rates of up to 11 percent, with some recently trading at a discount; and trophy buildings with cap rates of about 8 percent to 8.5 percent that have continued to trade.
Indeed, South Florida scored a few top sales.
Monarch Alternative Capital and Tourmaline Capital Partners paid $250 million for 801 Brickell in Miami in 2023, and Paul Singer’s Elliott Investment Management paid $443 million for 701 Brickell in Miami in 2024. They marked the biggest South Florida office sales for each year.
Many other sales of the past three years were forced. Even if landlords weren’t facing distress, they and sometimes their lenders want to reduce their exposure to offices, Moret said. And selling in South Florida or elsewhere in the Sun Belt — which remains relatively healthier than elsewhere in the U.S. — was the better option.
“A lot who have owned buildings for nine to 10 years look through their portfolio. These institutions generally want to own [fewer] offices. If they sell something in New York … they will take a loss,” Moret said. “But sell in South Florida or Dallas, they can get out whole.”
Yet to shake out
South Florida’s office market has been defined by dichotomies over the past three years. Leasing and occupancy remained stronger than elsewhere in the U.S., but higher interest and cap rates lowered values.
Case in point: Downtown Fort Lauderdale scored two big office sales in February. Yet, neither property notched a significant value gain, despite the pandemic era run-up in leasing and rents.
The 470,800-square-foot Las Olas Centre I & II, with an 18-story tower and a 15-story tower at 350 and 450 East Las Olas Boulevard, sold for $208 million, or $4 million more than its last purchase price in 2014, according to records. The 23-story, 410,600-square-foot Bank of America Plaza at Las Olas City Centre at 401 East Las Olas Boulevard traded for $221 million, a mere $1 million more than its 2016 sale price, records show.
“We paid basically the same price that our institutional seller paid in 2016 when rents were less than $30 per square foot, and now they are at $60 per square foot,” said David Moret, of Miami-based investment firm Highline Real Estate Capital.
Highline partnered with Coconut Grove-based Square2 Capital and Dallas-based Lone Star Funds on the Bank of America Plaza purchase. Lone Star did the deal through its real estate fund VII.
“From a leasing perspective, the South Florida markets are still very strong,” Moret said. “But you still are in a generally negative sentiment around offices from a capital markets perspective.”
Good fundamentals, such as rent increases, and bad macroeconomic conditions, such as higher interest rates, take time to trickle through the office market and make their mark on values, Moret said. Across South Florida, more distress is yet to shake out.
Some office landlords still have tenants locked into long-term leases paying pre-pandemic rents, Moret said.
“There’s a lot of these troubled buildings that are under water, but they still have the big tenants paying rent at yesterday’s rates and haven’t moved out yet,” he said. ”The income is still there, so no one has had to face the music yet.”
Other owners already face debt troubles, but their lenders either keep extending maturity deadlines or prefer to sell the delinquent loan to investors instead of pursuing foreclosure.
Highline has “been actively buying debt in office deals,” Moret said. “There’s a lot of transactions occurring behind the scenes like debt purchase.”
Values heading up or down or holding steady?
The “Survive ‘til 25” adage no longer brings hope to investors.
Persistent inflation, a steady labor market and an uncertain economic future due to the Trump administration’s tariffs have curbed expectations for cuts of the Fed’s benchmark interest rate.
CoStar’s sale price index projects an increase in South Florida office values next year and in 2027. But not everyone is convinced this will happen. The investment enthusiasm for South Florida has waned, with the tri-county region now exposed to competition.
“If I can get the same property for $5 million in Atlanta, but $10 million to $12 million in Miami, the differential there starts to look attractive, especially if you believe in the long-term these markets will come back,” Bell said.
South Florida’s current office values –– lower than the 2022 peak, but still higher than 2018 and 2019 levels –– just may hold in upcoming years, he added.
“For the last two years people were hoping rates would go down, but that didn’t happen,” Bell said. “So values won’t budge up or down much. Where we are at is going to be the new normal for the next year or two.”
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