Miami’s newest office tower is still under construction, but it’s earned a distinction that eludes most other U.S. office buildings: It’s full.
More than six months before the 55-story glass tower 830 Brickell even opens, all 640,000 square feet of its available space have been leased at rents that are double the landlords’ initial estimates and set records for Miami’s office market. Microsoft and Citadel are among those that have committed to moving in, and the queries keep coming from blue-chip financial firms and white-shoe law firms.
“Not only have I turned people away, but the tenants we leased to, four or five of them still want more space,” said Andrew Trench, executive director at Cushman & Wakefield in Miami, who is on the leasing team representing the landlords, OKO Group and Cain International.
“If we had another hundred thousand, two-hundred thousand square feet, it would fill up.”
To look at South Florida is to see the opposite of everything we’ve come to expect about office buildings in the post-pandemic era, where companies, struggling to coax workers back in-person are shrinking their leases, and landlords are practically giving away space just to reverse the tide of vacancies. Office vacancy rates nationally on average were nearly 18% in the first quarter.
By every measure and metric, South Florida stands out. Of 15 major office markets in the country, Miami was one of two where more space was leased than vacated in the first quarter, according to brokerage Colliers. In the financial district known as Brickell, asking rents for prime buildings jumped 24% from a year ago while vacancy rate is less than 10%, according to CBRE.
In West Palm Beach, an emerging southern Wall Street where firms such as Goldman Sachs and BlackRock have opened outposts, vacancy for Class A towers is the lowest in 13 years. So-called trophy buildings there have even less empty space — 3.6%, according to CBRE.
What’s driven the success of Florida’s office markets while others are struggling is their appeal to established, well-heeled tenants from places like New York and Chicago that have have never had a presence in the Sunshine State but are able to pay up for top locations — fast.
“It was new-to-market migration,’’ Trench of Cushman said. “We weren’t trying to steal tenants from other buildings and convince them to move.”
The ongoing demand from financial and legal firms spurred New York-based developer Related Cos. to increase seven-fold its office commitment to West Palm Beach. In early 2020, the firm’s office holding there was limited to a single, under-construction tower, 360 Rosemary. By the end of 2021, it fully leased the building — including a top floor garage reserved for office conversion based on demand at some future date.
That same year, Related bought three existing office buildings, and it’s erecting yet another. The under-construction project One Flagler won’t be complete until April 2024 but already has tenants committed to 75% of its space, said Jordan Rathlev, senior vice president of development at Related.
And there’s still more coming: Last month, Related vacated a movie theater on land it owns in West Palm to make way for two additional office towers. Demolition starts within 60 days.
“The velocity of leasing that took place continues to give us that drive to do more,” said Rathlev.
“There are very few places in the country where you’d be having this discussion,” he said. “But the level of interest from capital providers and tenants in South Florida puts us in a unique position.”
The office migration, as brokers and executives tell it, began in mid-2020, when workplaces most everywhere were still shuttered and employees decamped from crowded cities to work from warmer, less crowded climates, near the beach. The finance and insurance world’s top executives already owned second homes in South Florida and soon their lower- level employees did, too.
Hedge funds, private equity firms and family offices were the first wave of new Florida commercial space seekers, seeing a chance to get their newly local employees back to the office with an ocean view at a fraction of what high-rise space costs in Manhattan, said Steven Hurwitz, a managing director at brokerage JLL in Miami.
Next, the country’s largest law firms set up a perch, sensing opportunity in following their wealthiest clients south. Some firms, assessing how much space they might need, discovered it was more than they thought.
“When they started surveying their attorneys, some sheepishly raised their hands and said ‘I’ve already been living in South Florida for six months and I’d love an office,” Hurwitz said.
The area’s new breed of tenant is what turned 830 Brickell from a potential disaster to a case study in incredibly good fortune — and a historical turning point.
The tower broke ground in late 2019 as the first new office building in Miami in about a decade, Trench of Cushman & Wakefield said. The developer’s realistic but ambitious goal in an area not known for its office appeal was to have the building half-leased by the time it was completed and achieve rents slightly above the then-market rate, between $65 to $73 per foot, Trench recalls.
To get financing, the owners needed at least at one tenant commitment, so they inked a deal with WeWork, a reliable filler, to take 140,000 square feet — or more than 20% — of the building.
Then came the pandemic, and “the whole world shut down and office space is squarely in the crosshairs and the message from the world is that no one is ever going back into the office,’’ Trench said.
The tides turned slowly, and then fast. In 2021, a private equity firm signed a lease for two floors at $80 per foot and “we felt like we beat the world, and we were blowing out our project,’’ Trench said.
That would turn out to be among the cheapest rents. Rents crossed $100 per foot with one financial institution, then climbed to $100 and cleared $130. The landlord eventually bought WeWork out of its lease to make way for higher paying tenants. Legal firm Kirkland & Ellis took the last available block of space in December. Ninety-percent of all the building’s tenants are new to Miami market.
The demand has had spillover effects on other buildings in the central business district. At nearby 801 Brickell, leases are now “consistently” signed at between $90 to $100 per square foot, as compared with about $60 before the pandemic, said Stephen Rutchik, vice chairman at the Miami office of Colliers who’s been marketing space at the building for early two decades.
At Miami’s Citigroup Center on Biscayne Boulevard — a 40-year-old building that underwent a complete renovation, including an overhaul of the lobby, the elevators and the exterior façade — new tenants committed to 60,000 square feet in the last 12 months, and the landlord is speculatively renovating 30,000 more square feet in anticipation of more takers, Hurwitz said. Older tenants whose cheaper leases are expiring, are fanning out and filling other buildings across the city
The frenzy for limited office space for the toniest clients has settled into something more measured as industries and services expand to cater to the influx of new permanent residents, Rutchik said.
“The nature of the tenants and the companies that have moved to South Florida have created a new foundation for our economy,” he said. “The ecosystem is being built out: There are universities coming to Florida from other cities in the United States, the health care system is expanding, the housing market is growing.”
And all of them need office space, he said. “A majority of these companies have a substantial number of employees in South Florida now,” Rutchik said. “It does not feel speculative anymore. It feels safer.”