Miami Offices Succumb To Slowdown As Pandemic-Driven Growth Dissipates

After years of pandemic-driven growth and migration to South Florida, the region’s office market experienced a marked slowdown in the second quarter.

Miami-Dade, Palm Beach and Broward counties all saw office vacancy tick up and new move-ins slow down as companies re-evaluate their space needs and fewer new-to-market tenants put down roots in the region. 

The turnaround was the starkest in Miami, where a strong first quarter has given way to the first decline in asking rents in at least three years, according to preliminary data from Colliers. Miami also experienced negative absorption for the first time since the beginning of 2021, with more than 234K SF of net vacancy added in the second quarter after accounting for move-ins. 

Asking rates in Miami were at $51.90 per SF at the end of the second quarter, down five cents from the previous quarter. The decline was more pronounced among Class-A office assets that had previously been driving rent growth in the county, but fell by 34 cents in the second quarter to $58.34. 

Maggie Kurtz, a senior vice president at Colliers focused on landlord and tenant representation, told Bisnow the decline in asking rates was more due to the quality of space available than because of falling demand. 

“When we had this influx of people coming in, and they were coming from other markets, they wanted Class-A because that's what they were used to. And what else did they want? They wanted a water view,” Kurtz said. “As soon as all the water views were eaten up along Brickell Avenue and Downtown, that’s when you started to see the decline" in asking rents.

While leasing volume is down compared to the heights of the pandemic, the market remains strong, said Tere Blanca, founder and CEO of Blanca Commercial Real Estate. She said the 1.6M SF of leasing activity in the first half of 2023 that her firm tracked is still 13% more than the average first half in the five years prior to 2022.

“Vacancy has only gone up about 220 basis points [since 2019], and that is actually a stellar performance of a market that continues to be quite resilient and perform very well," Blanca said. 

New-to-market leasing was actually 3.3% below its five-year average in the first half of the year, according to Blanca CRE data, indicative of just how sharply that trend has slowed. 

“Let’s say if last year we had 25 new-to-market tenants, this year we probably have five,” Kurtz said.

Some of the increase in vacancy — both Colliers and Blanca CRE data showed a 30-basis-point uptick — can be attributed to tenants downsizing their office footprints to reflect the codification of hybrid work. More than half of U.S. companies plan to reduce their office size in the next three years, according to CBRE’s Spring 2023 Office Occupier Sentiment Survey.

While Miami has fared better than most other U.S. metros in return-to-office rates, office utilization in the city still lags far behind 2019 levels. Average monthly office visits were down 31.6% in May compared to 2019, according to data from Placer.ai.

Kurtz said tenants continue to downsize their footprint when renewing leases, but many are now working to get their employees back into the office and returning less space than they did at the height of the pandemic. 

“As people are renewing, we’re starting to see them give back maybe 10% of their space” Kurtz said. "While before, during those past three years, they were giving back 30% of their space or 100% of their space and saying they would ride out this storm in an executive suite."

Broward and Palm Beach counties saw similar slowdowns in office leasing, but unlike Miami, they had already begun to see activity recede to start 2023.

Palm Beach County saw the greatest increase in total vacancy in South Florida, rising a full percentage point to 9.3%, according to Colliers data. This was due in part to the largest negative net absorption in a quarter since at least 2019, with more than 514K SF of net vacancy added after accounting for move-ins. 

The downturn was also evident in Broward County, which had already experienced two quarters of rising vacancy and negative absorption. Total vacancy rose 20 basis points to 11.5% in Broward, which saw around 200K SF of negative absorption in the second quarter. Asking rents rose 12 cents to $36.70 per SF.

While South Florida has seen activity decline, Blanca said there are still tenants signing large leases or looking for 25K SF to 50K SF in the market. She pointed to the 119K SF lease the construction firm Moss & Associates signed in June at a Fort Lauderdale building formerly occupied by Citrix as a signal that the market remains strong. 

“There's a healthy population of tenants throughout the region that are performing well and are continuing to recommit to their lease obligations and even take more space,” Blanca said.