February 20, 2021 | Business Insider
By Daniel Geiger
• South Florida's office market has seen new interest from over 1 million square feet worth of tenants.
• The interest has made the area an outlier amid an otherwise moribund office market nationally.
• Here are five of the developers poised to profit from the influx of interest.
• Visit the Business section of Insider for more stories.
It's Wall Street of the (far) south.
In just a few months, that moniker has been attached to South Florida, an outlier market with warmer climes where major financial firms have migrated to. Goldman Sachs, Citadel, and Blackstone are either opening offices or rumored to be close to leasing space.
Meanwhile, much of the nation's office market has remained moribund for the past year, as the pandemic spurred tenants to work remotely and even reevaluate the office's role as the bedrock for culture, productivity, and collaboration in the workplace.
But South Florida has appeared to buck that slowdown: Office-leasing experts, landlords, and developers report that over 1 million square feet worth of inbound tenants have been exploring the market in recent months to either relocate or set up satellite spaces.
That's not to say that the pandemic hasn't been felt. Office vacancy across Miami's central business district, for instance, rose to 16.1% in the fourth quarter of 2020 from 13.7% at the end of 2019, according to CBRE data. There were 530,000 square feet of leasing deals in the fourth quarter compared with 880,000 square feet in the same period the year prior, CBRE said. Average asking rents remained essentially flat year over year at $44.45 per square foot, according to CBRE.
Leasing experts say that developers who either are underway with new office projects or planning to break ground have seen an outsize share of the demand as a wave of inbound tenants have focused in on gleaming new spaces.
"There really is a flight to quality," said Alan Kleber, a managing director at JLL who has helped arrange some of the area's headline leasing transactions in recent months, including Blackstone's recent decision to open a roughly 40,000-square-foot outpost in downtown Miami.
"Tenants today are attracted to the better-quality spaces with natural light and newer ventilation that make them safer post-COVID," Kleber added. "This is the segment of the market that is especially in demand."
Here are some of the developers and builders best positioned to capitalize on the interest in the Sunshine State.
David Martin, CEO of Terra Group
The Miami real-estate investment and development firm Terra Group, along with a partner, finished building and leasing a seven-story office property in the Coconut Grove neighborhood along Miami's waterfront last year.
It wasn't long before they filled the almost 80,000-square-foot building at 3310 Mary St. with tenants, including the accounting firm Kaufman Rossin, which took nearly 65,000 square feet.
"We leased the building so quickly, I wish I had more office product," said David Martin, Terra's 43-year-old CEO, a prolific builder of both commercial and residential space in Miami. "Every day that goes by, we have new people with space requirements that we're not able to fill at the moment."
Martin is planning a solution. Terra will soon break ground on another similarly sized office project also in Coconut Grove on Commodore Avenue, and it is in the process of going through a public approval process to raise a 150,000-square-foot office building in Miami Beach's nearby South of Fifth neighborhood.
Martin has focused his commercial development in the same areas where Terra has raised over $1.5 billion worth of condo projects in the past decade, including a recently built pair of Bjarke Ingels-designed towers known as Grove at Grand Bay in Coconut Grove and the Renzo Piano-designed Miami Beach tower Eighty Seven Park.
"A lot of the migration to South Florida are people who want to live close to where they work," Martin said. "A gentleman recently bought a penthouse from me, and now he has a 25,000-square-foot office requirement we're talking about."