New Deliveries Begin To Test Miami’s Office Success Story

Developers rushed to meet demand for trophy office space in Miami during the pandemic, with nearly 2M SF of space under construction at the end of 2023.

The first of those projects are starting to come online, and they show that the surge in companies opening hubs in South Florida has meant uneven success for developers building new offices. Two of the three buildings delivering this quarter are fully leased, while another is completely vacant.

In Miami Beach, a mixed-use mid-rise called Eighteen Sunset delivered fully leased, while a single tenant took down an entire Wynwood property. 

But the first office space to deliver at Miami Worldcenter, the 27-acre master-planned project in the city’s downtown, also came online with none of its 128K SF spoken for.

The new buildings have come online amid an office leasing market that has been steady over the past year but has lagged well below pandemic highs. 

Miami-Dade County saw roughly 740K SF of leasing activity in the second quarter, matching the level of the first quarter, according to preliminary data provided by Blanca Commercial Real Estate, but 11% below the same period last year. Roughly 30% of the deals signed this quarter were in Brickell and Downtown. 

Activity in those neighborhoods, the historical linchpins of Miami’s office market, was boosted by a handful of leases, including Citadel’s expansion at the under-construction 830 Brickell and Fowler White Burnett’s relocation to Citigroup Center, according to Blanca CRE.  

The 830 Brickell tower, being developed by OKO Group and Cain International, was originally slated to deliver in 2022, but tenants only got access to begin space construction earlier this year. The building, a magnet for pandemic-era relocations and expansions, is delivering with nearly all of its 640K SF leased.

Overall vacancy dipped down 0.2% to close the second quarter at 16.5%, and the flight to quality narrative that has dominated leasing trends — where companies upgrade space while downsizing footprints to woo workers to the office — continues to push rates higher.

The smallest office project to come online this year was Eighteen Sunset, a boutique project at 1752 Bay Road in Miami Beach with 40K SF of office and 17K SF of retail space. 

The fully leased property opened its doors to a cadre of small-footprint tenants, including wealth managers and family offices, Blanca said. 

It was originally slated to be a condo project, but developer Deco Capital opted to keep the residential amenities, including a rooftop pool deck, for office users.

“The fact that we kept the residential amenities of our building in place for the office use has been something that's helped us achieve probably the highest net effective rents on the East Coast of the United States south of New York City,” Deco Capital CEO Bradley Colmer said at a recent Bisnow event. 

Asking rates in Miami-Dade County sit at $65.47 per SF for Class-A space, with Brickell’s Class-A asking rents coming in at $96.69 per SF.

But concessions are rising as landlords compete to lure tenants without reducing their face rates, according to JLL’s quarterly report. 

Across the bridge in Downtown Miami, however, 601 Miami Worldcenter delivered 128K SF of new office space with no tenants secured. The property has four floors of office space wedged between ground floor retail and a condo tower.

Lynd, the tower's developer, is asking for among the highest rents in Downtown Miami at $70 per SF before operating expenses, pushing average rents in the area up 15% since its delivery, according to Blanca CRE.  

It’s the first office space to deliver at Miami Worldcenter, and Tere Blanca, founder of Blanca CRE, said she expects the property will eventually find a tenant. But she conceded that the types of tenants that take down large footprints typically look to be colocated near other office space, a potential factor in 601 Miami Worldcenter's slower lease-up.

“Office loves more office,” Blanca said. “Corporate users, especially top global firms and professional services firms, like to be in environments where there is a concentration of other professionals around.”

It’s unfair to compare a large property like what was delivered in Miami Worldcenter to the boutique space on offer in Miami Beach because they have vastly different target customers, Blanca said. The pace of preleasing seen at 830 Brickell was an aberration driven by explosive demand during the pandemic and limited supply. 

“They had the opportunity of the 2021-2022 wave of new tenants,” she said. “But looking back historically, it’s been a really solid pace of anywhere between 45% to 65% preleased at delivery, and that’s a very healthy market.” 

The third delivery of the quarter was the 48K SF adaptive reuse Wyncatcher project in Wynwood that was fully leased to coworking firm Knotel even before the company’s 2021 bankruptcy and subsequent acquisition by Newmark. 

Coworking has exploded across Miami in recent years, with the nearly 3M SF of shared space making Miami the 11th-largest coworking market in the country, according to Coworking Cafe.

Another 2.1M SF of office space is under construction, according to JLL, and developers have pitched at least four other speculative office towers in Brickell.

The developers of those properties are chasing prospective office tenants to anchor their properties before going out to the debt market and plowing ahead on construction, but it will likely take an economic shift to start seeing those deals materialize, Blanca said. 

Her firm is tracking a healthy number of tenants looking for large footprints in Miami, but she said they are all largely waiting on the sidelines until interest rates come down or the economic future is less uncertain. 

“These things need to normalize from a macro level for that kind of momentum of larger enterprises considering larger footprints,” Blanca said. “Whether it's in Miami or anywhere else, by the way.”