Trend Watch: More Investors Turn to Class B and C Office

“The most targeted properties are well-located class B and C assets with value-add potential and strong fundamentals. “

MIAMI—A growing appetite for well-located class B and C office properties with value-add potential is changing South Florida’s commercial real estate landscape, according to Marcus & Millichap investment broker Alex Zylberglait . He tells GlobeSt.com the reasons fueling this trend—which is targeting properties ranging from $1 million to $20 million—are many. GlobeSt.com caught up with Zylberglait to drill down into this trend in part one of this exclusive interview. Stay tuned for part two, in which he will discuss how foreign investors are mitigating the impact of a strong US dollar and more. GlobeSt.com: Developers are increasingly opting not to build office buildings but to reposition existing properties. How is that trend impacting the office market? Zylberglait: As a result of this trend, the office market has become very active, putting upward pressure on pricing. The most targeted properties are well-located class B and C assets with value-add potential and strong fundamentals. For example, densely populated areas with easy access to main roads and highways are becoming highly desirable for reposition opportunities. But as the demand grows, we are seeing fewer opportunities involving existing assets at significant discount-to-replacement cost. Most of the demand involves office properties ranging from $1 million to $20 million. GlobeSt.com: In addition to office developers, what other uses are fueling deals involving office properties? Zylberglait: Well-located office buildings are getting the attention of multifamily , retail , and hotel developers, especially in urban areas near the ocean where there’s opportunity for higher density as a result of redevelopment. The rent levels for these alternative uses are sufficiently higher to justify these buyers paying more for these assets. The only downside is that when office space is replaced by another use, the office inventory shrinks . GlobeSt.com: What are some of the areas in Miami that office investors and developers are targeting for value-add opportunities? Zylberglait: The areas with strong demographics and good transportation networks that are getting a lot of attention include the Biscayne corridor, Doral, North Miami Beach, and Miami Gardens. In fact, I am marketing an office complex in Miami Gardens with almost 200,000 square feet of office space on over nine acres of land. This office complex offers tremendous upside as it is priced significantly below replacement cost. This asset also provides large contiguous space for larger layouts, something that is getting harder to find in Miami-Dade.