Miami-Dade Office Vacancy Ticks Up but Market Outlook Not All Gloomy

The impacts on Miami-Dade County’s office market from sweeping work-from-home requirements are evident as it experienced a drop in occupancy since April.

Miami-Dade office real estate experienced a negative 483,014-square-foot absorption in the second quarter, the first time the county reported negative absorption since last year’s first quarter, according to a Colliers International report. Also of note is the 0.5 percentage point increase in the vacancy rate to 9.5% from this year’s first quarter.

The drop in occupancy doesn’t necessarily spell out a downward spiral for the office market as Colliers expects a balancing act of sorts. While struggling companies are shutting down leaving vacant square footage, companies still in business are expected to absorb this square footage as they expand their footprint by spacing out workstations in accordance with social distancing.

Office tenants that work in tandem with hard-hit aviation and cruise line industries generally are the ones exiting their leases or working out rent relief. Cruise lines have suspended some travel while both the cruise and aviation industry also are reeling from a drop in demand as coronavirus cases in some states, including Florida, climbed back up in recent weeks.

Other industries are not as severely impacted and pursued their office expansion and relocation plans. Law firm Morgan Lewis closed on an 18,000-square-foot lease at Brickell World Plaza and IberiaBank closed on a 14,000-square-foot one at 1111 Brickell Ave., both in Miami’s Brickell Financial District. Hospice provider Vitas Healthcare not only renewed its Kendall lease but expanded into a bigger 35,000-square-foot space.

Colliers’ report concedes that exactly how the office market would look in the time of coronavirus and once the virus curve is flattened remains to be seen. A few options are possible such as companies growing their square footage as they space out employees or keeping a smaller office in a downtown area as a hub while the majority of employees continue to work from home or in satellite suburban offices.

Companies are testing out new models such as employees working from the office on a rotational basis. Those that adopt this long term likely still won’t significantly reduce their square footage. They will space out workers, meaning all of the existing space would be used but just by fewer staff members.

Others who plan to bring back to the office their entire workforce might need even more space than what they previously leased.

“For those tenants that require all employees to be present in the office, they may need to expand their footprint to accommodate social distancing,” the report said. “This is less probable and more challenging for companies to afford in the time of a recession as additional space increases costs.”

Companies that don’t need to have all employees in the office could keep a small central hub where roughly a third of staff members work while the remainder work from home or in smaller satellite offices.

This is an expected “hub and spoke model” where the centrally located headquarters is the “hub” while the “spokes” are the employees’ homes or the suburban offices.

These suburban office “spokes” might end up being good news for workers whose commutes  to downtowns are reduced.

Two office concept that gained popularity before the coronavirus have a questionable future.

One is the open floor plan design that removes cubicles and wall separations among employees and favors common areas for mingling. In a post-pandemic workplace where social distancing is a prime concern, this floor plan likely no longer will be the go-to design.

The coworking concept, a big real estate trend in Miami as it has the second highest concentration of coworking space per square foot after New York, also has an uncertain future. Coworking space is popular among startups and small businesses, many of which are suffering from the coronavirus-induced economic slowdown.

Still, as small companies and self-employed workers return to work post pandemic, it’s expected they once again will demand coworking space as this type of office has an upside.

“They provide a ‘community’” Colliers said, “which is key to helping people reconnect and rebuild.”