The Trends in Commercial Real Estate

Lewis M. Goodkin | 8/1/2007

The Office Condo Niche

[Photo: Daniel Portnoy]

Many office leases allow owners and landlords to pass along higher insurance premiums and other costs to their tenants in the form of higher rents. So it’s not surprising that some office users — especially entrepreneurs and medical businesses — prefer to purchase office condominiums and gain more control over their costs while also benefiting from appreciation.

But office condominium ownership remains very much a niche market, as larger businesses and professional firms continue to opt for the flexibility of leased space while letting their landlords worry about operating costs. In many Florida markets, the cost of office condominium ownership is significantly higher than renting, putting a damper on that market segment.

Today, a substantial percentage of Florida office condominium properties are being offered by relatively inexperienced developers. In turn, a high percentage of their buyers have been investors, rather than actual users. That’s the same scenario that resulted in the disastrous overbuilding of the state’s residential condo market. While users may be willing to pay more for office space, compared to a rental, in the hope of future profitability, most investors in office condos appear to have unrealistic expectations about what the market will bear.

Tags: North Central, Housing/Construction