Miami's Office Leasing Is At A 4-Year Low As Pandemic-Era Deals Dry Up

Miami is on track to have its worst year of leasing activity since at least 2020 with a dearth of large deals and the average size of a new lease down to 3,682 SF.

The 780K SF of third-quarter leasing activity puts Miami at 2.5M SF year-to-date, according to Avison Young. That's on par with 2020, the worst-performing of the last five years. 

Large deals that helped propel Miami’s office markets to new heights during the pandemic have fallen off, with just one deal in Q3 reaching 50K SF.

Brokers say the city’s office market hasn’t cratered, but it is once again firmly planted on solid land after years in the stratosphere.

“Our success was based on prolific growth all based on this pandemic,” said Donna Abood, the Miami-based co-head of Savills in Florida. “Companies coming in, they're here now. The growth has already decreased.” 

Winston & Strawn inked the largest deal of the quarter, a 50K SF expansion lease at 200 S. Biscayne Blvd. The law firm was set to move into 830 Brickell but instead opted to expand at its existing space.

The next-largest deal was nearly half the size, with Banco Master leasing 27K SF at 830 Brickell, the long-awaited office tower that delivered this quarter after years of delay. 

The 664K SF tower is fully leased but most tenants are still building out their spaces, with Santander Bank’s 95K SF office being the only occupied space, according to Avison Young. 

That move-in accounted for nearly two-thirds of the quarter’s total positive absorption of 147K SF. The remainder of the high-profile tenants that inked deals at 830 Brickell, led by Ken Griffin’s hedge fund Citadel, are expected to move into the building over the next few quarters, providing another 569K SF of positive absorption that is driven by pandemic-era deals.

Miami’s office market remains in a stronger position than most other metros across the country, with vacancy down just under a percentage point this year to 15.8% and the highest office attendance numbers in the country. Nationally, the office market is 22.2% vacant, per JLL.

“While office leasing in Miami has slowed down this year, the city still ranks third in the country for utilization (foot traffic) and remains above the national average according to Avison Young’s Office Busyness Index,” Jason Steele, Avison Young’s Florida research lead, said in a statement. 

“We anticipate this slowdown to be short lived as economic headwinds such as the upcoming election and the anticipated interest rate cuts are ironed out over the next few months,” he said. 

Average asking direct rents across Miami-Dade County were $59.93 per SF in Q3, according to Avison Young. Miami’s most popular submarkets are significantly more expensive, with Brickell, at $89.69 per SF, second only to Miami Beach, where limited supply and new boutique offerings have pushed asking rates to $96.49 per SF. 

Rents at the newest properties in the most popular markets are being listed well north of $100 per SF. 830 Brickell at one point was asking for nearly $200 per SF and boutique properties on the ocean like The Well Bay Harbor Islands were asking for $120 per SF before monthly expenses. 

Rent growth was 4.8% year-over-year at the end of the third quarter, according to Avison Young, a retreat after pandemic-era years of double-digit growth. Brickell’s 3.2% rent growth lags the county after a meteoric rise, while Miami Beach leads with 13.3%.

In its quarterly report, Savills' researchers said the tenant mix in Miami is diversifying and will continue to stretch into other sectors. But they noted that recent large transactions have been in-market expansions rather than new-to-market arrivals, a trend Abood expects to continue.  

“Our rental rates are now going to stop that heavy, fabulous growth that we've experienced,” Abood said. “We're at that point of equilibrium.”

Some new office buildings, like 830 Brickell and the 40K SF Eighteen Sunset boutique building in Miami Beach, are coming online fully leased. But new deliveries are also testing demand, notably with the first 128K SF of office space to be delivered to the master-planned Miami Worldcenter in Downtown Miami coming to market entirely vacant last quarter. 

At least four new office towers have been proposed in Miami’s financial district, including a supertall headquarters tower that Citadel wants to build and a 1.6M SF property proposed by Santander Bank, which has relocated staff from the office building it owns at the future development site.

Together the properties would add millions of square feet of new office space in the city’s most popular submarket. If they move ahead, they could compete for tenants with Related Cos. and Swire Properties’ One Brickell City Centre tower, the first of the four recent proposals and another supertall.

Abood said she expects all the towers will eventually get built and absorbed, but she prefers it happen on an extended timeline. 

She said some of the developers might try to build spaces where rents can come in below Brickell’s most highly sought addresses rather than try to compete for the same class of tenant, one that is increasingly harder to find. 

“The thing about trophy buildings, they cost about three times as much to develop. So you bring in a trophy building, you'll be at $150 per SF of rent,” Abood said. “As the market continues to shift down, that would be an outlier.”