"What will differentiate this market during the short and long term is the county's emphasis and promotion of R&D related businesses," states a research report by Colliers Abood Wood-Fay. "The office market can expect to reap dividends into the foreseeable future."
CB Richard Ellis researchers agree that Palm Beach County is positioned for long-term growth, but in the meantime it is feeling the same supply-and-demand imbalance caused by Wall Street instability. Many of the financial-based companies within the market are looking to consolidate locations, contributing to a supply excess that has driven overall vacancy to nearly 24% through the first quarter, up at least seven percentage points over the past year, CBRE states.
Among larger submarkets, Boca Raton reached 26% vacancy through the first quarter, while West Palm Beach was at 22.6% and North Palm Beach stood at 18%, according to CBRE statistics show. Average asking rents remain below $20 per square foot triple net.
Lease rates are expected to decrease slightly this year as landlords attempt to fill large blocks of space, according to CBRE. Concessions will be a big factor in tenant space searches, though that will likely be on a case-by-case basis.
Sublease space during the first quarter measured nearly 735,000 square feet in the first quarter, roughly triple the amount recorded during the same period in 2008, CBRE reports. Only 124,000 square feet is currently under construction at the two-building Lynn Financial Center in Boca Raton.
Although Palm Beach County's unemployment rate remained just under 10% through the first quarter, additional job losses are expected through the remainder of the year, according to Marcus & Millichap. Total employment is expected to fall 3% by 16,200 workers throughout 2009, with 8,100 office-using jobs forecast to be eliminated, a 4.7% decline.
"The investment market will likely remain subdued as buyers, sellers and lenders realign expectations," says Greg Matus, Marcus & Millichap's regional manager in Fort Lauderdale. He notes that cap rates range between 7.7% and 8.2% for top-quality assets, with additional upward movement expected to occur in the months ahead.
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