MIAMI-Call it a tenant’s market—still. Companies inking new leases in Downtown Miami, Coral Gables and the Brickell Corridor are getting attractive leases.
In fact, users are finding some of the most tenant-favorable conditions in more than a decade. The recently-released 2011 Studley Effective Rent Index (SERI) shows that occupancy costs were still 30% below their peak levels of three years ago and there was a continued increase in the value of concessions.
“What we are seeing is landlords are continuing to take a very aggressive approach if they want to induce tenants to relocate to their properties,” says Bob Orban, senior vice president and branch manager at Studley. “Yet, there’s no question that the new developments in Coral Gables, Brickell and Downtown have achieved some degree of success because tenants had the sense that terms were not likely to be much more favorable and locked in significant concessions such as signage, generous tenant improvement allowances and rent abatement periods.”
Although terms remained very positive for companies completing leases during 2010, the report notes overall leasing activity improved both in terms of volume and quality. In contrast to the paralysis of 2009, Orban says, many businesses were regaining confidence and assuming that the worst of the recession was behind them—and decided that the time to strike on quality space was at hand.
This flurry of leasing made landlords in the highest-caliber buildings feel a little more secure as 2010 progressed, prompting them to rein in concessions, according to Studley. The average value of concession packages declined from the record level of $65.85 in 2009 to $53.98 in 2010.
Even so, the average concession package of $54 was still 54.2% higher than the $35.00 mark posted in 2006. Net rents were stable, but the pullback in concessions caused the Miami tenant effective rent index—which measures the cost of occupancy for tenants in higher-caliber class A properties—to nudge up by 2.5% to $27.32. The landlord effective rent index rose by 18.6% from $12.91 to $15.30. In addition to the decline in concessions, landlords’ bottom line rose due to falling operating expenses as insurance premiums have cooled recently.
Richard Schuchts, a senior vice president in the firm's Miami office, tells GlobeSt.com that things are improving, but it will take years for the market to shift to equilibrium, much less a landlord’s market. With additional new office space coming online this year to add to the glut, he says, the market is simply overbuilt.
“We are starting to see rates come down and the spreads are even greater now between asking rates and what deals tenants can get done if they are represented by a broker,” Schuchts says. “When we look back, we’re going to find out that some people paid a lot more than others for the same space. There are some landlords that are confusing an economic recovery with an office market recovery."
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