(Crystal Proenza is associate editor of Real EstateFlorida.)
MIAMI-Office tenants in South Florida are attempting to reduce overhead costs at the same time as rental rates are rising, according to the latest market research by Studley Inc. As a result, landlords are offering concessions in an effort to hold the line on occupancy and asking rents.
"We're seeing weaker tenants start to peel off," Thomas Capocefalo, managing director at Studley's Miami office, tells GlobeSt.com. First-quarter leasing activity throughout the South Florida region rose 10.7% from last quarter, but is still down 26% from last year, according to the Studley report.
Rising costs are a cause for concern among both tenants and landlords, with South Florida's inflation rate reaching close to the top of the national charts at 5.8% in 2007, Studley's report stated. The national inflation rate last year was 4.1%, largely due to rising gas prices, housing costs and lowered consumer spending.
Tenants are looking to cut costs when it comes time to renew leases, or are even looking to relocate if they find lower prices. In order to accommodate these needs, landlords have begun to offer rent abatements, parking options, tenant improvement allowances or renewal and extension options, Studley reports.
Despite the state of the economy, office rental rates in Miami-Dade County continue to rise, driving the overall South Florida rate to an average of $29.23 per sf, a 2.9% jump from last quarter, according to Studley. CB Richard Ellis puts Miami's average asking rates at $30.88 full service gross in the first quarter. Class A rental rates fell by 1.7% in Palm Beach County, leaving rents at $22.64, and Broward County showed signs of flattening rates with 1.2% growth from last quarter, putting class A rents at $20.69, according to CBRE.
With new space being delivered in Palm Beach and Broward, availability rates for the region are increasing. South Florida's overall availability rose at least three percentage points from last year, to 15.1% in the first quarter, according to Studley. In Miami, vacant sublease space has doubled since first quarter last year to 251,864 sf, according to CBRE, which attributes the increase to corporate downsizing in the face of a recession. However, Miami's office vacancy remains low at 8%.
Landlords in the region are attempting to maintain current rental rates in the face of the rising availability. In turn, tenants are demanding concessions, and landlords are agreeing to them.
"Certain submarkets may maintain a narrower perspective," Capocefalo says. "For example, in Coral Gables there's limited alternatives for tenants move to because there's restrictions on size and space availability, so that market has maintained its price point. The Downtown Miami market may also maintain its current rates until new buildings get delivered."
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