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> South Florida Business Journal, July27-August 2, 2001
by Dan Ruck
"Office
rental bonanza puts tenants in charge"
Good news for office renters in South
Florida: it's your turn to call the shots.
So says Kenneth Morris, second generation
president or real estate brokerage Morris Southeast Group
and an observer on local office market twists and turns
for more than a decade.
What that means, Morris said, is that
after a year of economic slowdown, rental rates are starting
to flatten and landlords are granting concessions such as
periods of free rent and generous space improvement allowances.
If you're muddling along in a third-tier
Class C office building and yearning for brighter surroundings,
now's the time to look, Morris said. The same goes for considering
a move from Class B to top-of-the-line Class A space.
That's because there's something of
a glut of Class A sublease space, thanks in part to the
misfortunes of some dot.com and high-tech firms, he said.
The percentage of Broward County sublease
space available in Class A is almost four times as great
as it is in Class B - 22 percent versus 6 percent- he said.
A good example of what he's talking
about is Lucent Technologies' new, built-to-suit, 240,000-square-foot,
Class A headquarters in Miramar, he said. The firm is offering
a third of it for sublease.
Morris's market outlook reflects those
of other forecasting firms, such as Cushman & Wakerfield,
Marcus & Millichap and Julien J. Studley.
Beach bonanza
One place to look for a classier address is Miami Beach.
Cushman & Wakerfield reported in its mid -year MarketBeat
Snapshot that the office vacancy rate in Miami Beach has
"more than doubled" to 19.1 percent since the
beginning of the year of the year and "more space is
expected to become available in the near future."
"To make matters worse,"
the report said, "this sector is in the midst of an
office construction boom with 211,246 square feet expected
to be completed by year-end, of which only 17 percent has
been pre-leased."
Morris said Miami Beach was favored
by some now-failed firms for its night life and proximity
to the ocean. "From a purely business standpoint, there's
no reason to be there instead of Miami," he said.
Another real estate hot spot that
has cooled is Boca Raton.
"While this submarket isn't necessarily
suffering and is still attracting prominent high-tech and
corporate users, it certainly is not performing with the
strength of recent years," Cushman & Wakerfield
reported.
The firm added that by mid-year, Boca
Raton "is the only submarket [in Palm Beach Country]
that had a decrease in rental rates."
Sticking point on rates
Morris said what's happening in Boca Raton only mirrors
developments in the office real estate market across South
Florida. While Cushman & Wakefield reported rental rates
softening there, Morris said rates don't respond to the
pure model of supply and demand.
A landlord can't cut rates arbitrarily
to fill empty space if there's a mortgage on the property,
he said. Terms of that loan typically specify that space
be leased at a certain range of rates, and to ignore that
means a landlord is at risk of violating his or her loan
agreement.
What landlords can do is what's being
seen now, Morris said: subleases available with furniture
and office equipment already in place so a tenant won't
have to provide it.
In Broward, average rental rates -
Class A vs. Class B - are $19.97 a square foot and $16.21,
he said. It's $25.30 and $18.90 in Miami-Dade Country and
$19.75 and $17.29 in Palm Beach, he said.
Meanwhile, there's roughly as much
Class C space in South Florida - almost 76 million square
feet - as there is Class B and Class A, but it rents for
an average of $13.84 a share foot.
By comparison, Class B property rents
for $18.90 a square foot on average in Miami-Dade, $16.21
in Broward and $17.29 in Palm Beach, Morris said. But, he
predicted, softening rental rates could put them more in
line with those for Class C.
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