After the pandemic ignited a surge in new-to-market tenants from states such as New York and California to South Florida, Donna Abood believed that the spike would eventually subside.
“When we got up to this pinnacle, we thought, ‘OK, we’re gonna plateau,’” Abood, vice chairman and co-head for Savills Florida, recalled while on the main stage at The Real Deal Miami Real Estate Forum. “Nope. They’re coming all the more because we are the place to do business.”
Abood shared insights into the current state of South Florida’s office market alongside Ryan Holtzman, executive managing director of Cushman & Wakefield, and David Moret, founder of Highline Real Estate Capital. For the most part, new tenants with deep budgets flocking to new projects in Brickell, downtown Miami, Wynwood, Miami Beach and Coconut Grove are propping up the region.
“When these groups come into town, they’re used to class A buildings in New York, Chicago and California,” Holtzman said. “And they’re willing to pay up to be in the best buildings.”
For instance, The Fifth Miami Beach, a five-story boutique building currently under construction in Miami Beach’s South of Fifth neighborhood, is among the most expensive new projects in South Florida, Holtzman noted.
Cushman & Wakefield is handling leasing for The Fifth Miami Beach, which is being developed by Sumaida + Khurana and Bizzi + Bilgili –– a joint venture between Turkish investor Serdar Bilgili’s BLG Capital and Bizzi & Partners. The new building will have 60,200 square feet of offices, retail and dining space.
“The Fifth Miami Beach is a jewel box,” Holtzman said. “It has a ton of demand. We’re close to 90 percent [leased] in terms of deals that we’re negotiating on, and we’re hitting record rents [for the city] between $180 to $240 [a square foot].”
Abood grilled Holtzman about new tenants eventually pushing back on high asking rents. “Don’t you think there’ll be some point in time when companies are going to say ‘Enough. I’m not coming to Miami for $240 a square foot.’”
Holtzman insisted projects like The Fifth Miami Beach are attracting hedge funds and private equity firms that are leasing spaces of 10,000 square feet or less. “For them, it’s a small amount based on the quality of where they want to be and the type of asset.”
In the next couple of years, he expects the Miami-Dade office submarket to experience a boost from tenants seeking spaces larger than 10,000 square feet at competitive rates. Those firms, he said, will flock to new office spaces in projects like Miami Freedom Park, a $1 billion mixed-use project anchored by a soccer stadium being developed by Inter Miami MLS franchise owners, billionaire Jorge Mas, retired international soccer star David Beckham and Ares Management.
The developers are currently building the project’s first office building that will have 250,000 square feet of space, which is being marketed by Cushman & Wakefield, Holtzman said. “That’s going to get much larger tenants,” he said. “We’re going to see corporate groups relocated from Charlottes of the world and Atlantas of the world. That’s going to be a different price point and a different type of product.”
Yet, the overall office space in Miami-Dade County is shrinking, noted Highline’s Moret. “Roughly 10 percent of the entire office market has either been demolished or is going to be demolished for industrial or multifamily,” Moret said. “And, at the same time, you’ve got a flight to quality because tenants want to get their employees back in the office.”
Institutional owners of older office buildings are also seeking exit strategies, Moret said. “Office is still a four-letter word,” he said. “There is pretty much zero institutional capital chasing office these days.”
