According to the Miami Herald, 1450 Brickell continues to dominate the Miami office market as tenants flock to the state-of-the-art office tower. “Good tenants attract good tenants,” says Tere Blanca of Blanca Commercial Real Estate. “We’ve had a very active year and we see no sign of that slowing down. We have more activity than we have space in the building.
Musical chairs in downtown Miami as firms seek better lease deals
The market is still struggling to fill a glut of available space at downtown and Brickell office buildings in Miami. But some brokers see signs for hope.
by Elaine Walker
The boxes are mostly unpacked and the law firm of Bilzin Sumberg has moved into its new home at 1450 Brickell Ave., more than a month ahead of schedule. Just over the bridge, about half the employees at Greenberg Traurig’s Miami offices have relocated to the new Wells Fargo Center in downtown Miami. The rest will arrive by the month’s end. With the two major law firms settling in at downtown Miami’s newest office towers, the market’s long-anticipated game of musical chairs has swung into high gear as companies move from older buildings in the area.
Bilzin Sumberg Baena Price & Axelrod and Greenberg Traurig are some of the many tenants taking advantage of the space glut on the market — using the opportunity to upgrade their quarters and lock in long-term leases at the newest buildings. Vacancy rates for office space in cities have been rising throughout the United States and in South Florida. But the situation is especially acute in Miami because its core downtown market is trying to absorb 1.3 million square feet of new space at a time when businesses throughout the region and across the country have been contracting.
“The newer buildings are built with all the mistakes eliminated from the past,” said Brian Bilzin, the firm’s co-founder. “The floors are very large; there are very few columns that restrict the flow. Our space was built to meet the specific needs of our practice, compared to the old location where it was a patchwork.”
In the year’s third quarter, the combined vacancy in the downtown and Brickell areas is 23.9 percent, or more than 3 million square feet, according to Jones Lang LaSalle statistics. For the year, that market has only seen rentals grow by a net of 36,526 square feet as supply continues to outpace demand with very few tenants expanding or relocating from other markets. And still waiting in the wings: the half-finished Brickell Financial Centre, 600 Brickell Ave. Vacancy rates are also reaching record levels in downtown Fort Lauderdale’s core buildings. A survey of the 25 largest buildings in the downtown Fort Lauderdale area posted a 26.2 percent vacancy — a 10-year record, according to the Studley Index, a well-regarded national measure of the real estate market.
As is the case in many areas of the nation, Fort Lauderdale’s rising number of vacancies is largely the result of an economy that has seen many companies cut back on the amount of space they are leasing. Although it all adds up to a great time for tenants to make a deal, many right now are opting to stay put.
“Unless tenants are forced to make a decision, they’re not [moving],” said Richard Schucts, of Jones Lang LaSalle, who handles tenant representation. “We’re not at a commercial real estate recovery point. It’s going to be measured in years on how we get through this.” Other brokers see small signs of hope.
At Wachovia Financial Center, 200 S. Biscayne Blvd. in Miami, there are about 60,000 square feet of deals out for signature on expansion and renewals for existing tenants. The building has been hard hit by departures of Bilzin, Deloitte, Korn/Ferry International and the upcoming departure of Wells Fargo Advisors. But new tenants are looking at those spaces.
“We’ve had more interest recently than there had been for at least the past 24 months,” said Don Cartwright of Cushman & Wakefield, which represents the owner of Wachovia Financial. “We’re seeing less downsizing and more expansions. It is not going to be a cakewalk with the amount of vacancies, but at least there is progress.”
Brokers say some businesses are taking advantage of the opportunity to upgrade space in their current buildings. Others are considering moving back downtown from the suburbs or upgrading from a lower-quality building.
“It’s the trickle-down theory,” said Brian Gale of Taylor & Mathis. “All of a sudden a tenant in a [Class] B building can afford to move to an A building for about the same as what they’re paying.”
What’s disappearing quickly is the premier space on the high floors with the desirable views.
“The better spaces are leasing at a good rate,” said Jonathan Kingsley of Grubb & Ellis. “It’s the low floors with the functionally awkward space that are taking longer.” Both of the two new buildings have each filled up about 300,000 square feet of space. But they’ve done it in very different ways.
At 1450 Brickell after a busy year they’ve filled about 52 percent of the building’s 582,817 square feet with a wide-ranging group of about 20 tenants. Some of those tenants include Bilzin Sumberg, City National Bank, JPMorgan Chase, HIG Capital, BNY Mellon and Korn/Ferry International. Tere Blanca, whose firm is leasing 1450 Brickell, expects they will have the building about 60 percent leased by the end of the year.
“Good tenants attract good tenants,” Blanca said. “We’ve had a very active year and we see no sign of that slowing down. We have more activity than we have space in the building.” By comparison, at Wells Fargo Center, 333 Avenue of the Americas, the leasing of about 40 percent of the building’s 752,488 square feet has come from only four tenants’ leases: Wells Fargo Bank, Greenberg Traurig, Deloitte and law firm McDermott, Will & Emory.
But with most of the available large tenants in the market committed, the focus should shift to smaller users, said Jack Lowell, of Flagler Real Estate Services, who handles the leasing for Wells Fargo. “Now it’s singles and doubles instead of home runs,” Lowell said. “If the economy picks up, the pace of leasing activity will also pick up and we’ll start filling up faster.”
The developers of Wells Fargo Center are hoping leasing will get a boost from this week’s opening of the JW Marriott Marquis Miami and next month’s Hotel Beaux Arts, which is part of the same Metropolitan Miami complex. The amenities of the complex was one selling point for Greenberg Traurig. Not having its own dining room and overflow conference facilities has helped the firm to shrink its space by about 25 percent. But the new space is a major upgrade with more natural light, offices with movable walls and client meeting space on one floor.
“We have a much more efficient design, which lowers our overhead,” said Richard Giusto, co-managing shareholder of Greenberg’s Miami office. “Anytime you can lower overhead, it’s better for us and for our clients.”