Rene Padilla paid $320 a square foot for a 4,200-sq.-ft. office condo at 4770 Biscayne.
[Photo: Daniel Portnoy]
Strong demand for office space, combined with a lack of significant new office construction, has made office condo conversions a hot market for developers in south Florida, Tampa, Orlando and Jacksonville. But there are signs that the market is shifting from developers in favor of buyers. "There's a concern of oversupply," says Bert Checa, an investment sales consultant with Holly Real Estate in Miami.
CB Richard Ellis reports that the number of planned or completed office condo projects in south Florida dropped to 56 in the third quarter of 2006, down from 60. The study notes that six office condo projects totaling more than 810,000 square feet are no longer being marketed as office condos and notes that several projects have reverted to leasing because of subpar sales activity. Sales prices for office condo conversions range from approximately $180 a square foot in downtown Jacksonville to $350 a square foot or more on Miami's Brickell Avenue. Newly built Class A office condo developments in south Florida sell for as much as $500 per square foot.
Most office condos appeal to small service or professional businesses that don't need an entire building. Architects, dentists, financial planners and other professionals who have a clear idea of their space requirements are good prospects.
In Orlando, Jeff McFadden's Taurus Southern Investments jumped into the office condo market in 2004. The approach worked well in Maitland, so McFadden decided to try it at the historic 12-story Greenleaf & Crosby building in downtown Jacksonville. Sales, focused primarily on law firms, haven't gone as quickly there, in part, says McFadden, because of Jacksonville's stalled downtown courthouse project. McFadden's not planning any more office condo projects. "I think the whole office condo market has softened," he says.
In the buyer's favor
Continued low interest rates and the prospect of appreciation are motivating some entrepreneurs to buy. This month, Rene Padilla is moving his International Register of Shipping, a maritime engineering and inspection company, from New Orleans to Miami.
Padilla paid $320 a square foot for 4,200 square feet in an office condo on Biscayne Boulevard. He sees the purchase as an opportunity to customize a space and benefit from the property's appreciation.
In some places, a combination of office condo and residential condo is taking hold.
Joel Cantor, CEO of Cantor Development, is including 36,737 square feet of office condos at Signature Place, a condo under construction in St. Petersburg. He says that 65% of the office space has been sold at an average of $325 to $350 a square foot. The idea to include an office component has been there from the start, he says. "We wanted to create a true mixed-use project."
Florida Market Trends
For up-to-date information on vacancy rates, Class A and Class B asking rents, office space under construction and space available for sublease in Florida metro areas, check out Grubb & Ellis' quarterly metro market trends. For Florida, there are reports for Broward County, Miami, Orlando, Palm Beach County and Tampa.