Tenants need to be aware of the current office trends because the pendulum has swung to the landlords and it is going to hang there for another year or two. My thoughts were confirmed as I listened to a webinar last week on the Office Market from a national perspective.
It is really interesting to listen to the numbers from a 30,000 foot perspective. The webinar was hosted by Costar, the MLS equivalent in the commercial real estate world. They do a great job running through the numbers and a couple of things stood out.
Although Miami is lagging in job growth as compared to hot spots like San Francisco, Seattle and even Atlanta, nationally office-using employment is soundly out-performing all other types of new jobs being created. This indicates an upside for office space across the country. Costar felt that Miami was lagging due to our continued recovery out of our housing fiasco.
Costar discussed some of the leading economic indicators and noted that they are positive overall, however, exports are slowing as the dollar rises. This is not particularly good for Miami since our primary trading partners are to the south. The good news is that they are not concerned about China selling off a bunch of US Treasury notes in order to prop up their sagging economy.
Q32015 had the highest net absorption of office space since 2006 and 2015 has been the best year for rent pricing growth for this real estate cycle. Nationally rents have increased 4.3% year over year. They are predicting that vacancy will continue to decline (currently at 11% nationally) and that vacancy will bottom out sometime between 2017 and 2018.
Another interesting slide was that CBD (Downtown areas of cities) were out-performing the suburbs typically…..until you get to Miami. In Miami the suburban office markets were experiencing more absorption than the Downtown/Brickell areas when you compare year over year. This could be due to the fact that the CBD is filling up with limited Class A space options which is forcing tenants out to the suburbs. Traffic could also be a factor with tenants retreating from the congestion of the CBD.
The other interesting slide showed that tenants are still preferring quality space, in spite of increasing rental rates. Costar had an interesting discussion about the cost of real estate as it relates to employees. With companies reducing their square footage ratio per employee, they are able to look at upgrading or maintaining top quality office space. This helps with employee recruitment and retention.
What does all of this this mean to you? If your lease is expiring in the next 24 months or if you need to expand, I would encourage you to engage an expert (namely ME) to assist you. Miami does not have a tremendous amount of new office construction in the pipeline, so as absorption of office space continues, tenants will have few options, fewer lease concessions and increased rental rates. A seasoned tenant rep broker (ME) can lead you through this mine field and help you make informed decisions. Contact me today for your free lease analysis.