- Statewide Trend: Office construction is slowing from about 10 million square feet of space in early 1999 to 6.1 million square feet at year-end.
- Factors: A turbulent stock market, a lingering cloud over Latin American economies and rising interest rates are likely to cool down demand for office space in Florida after a superheated 1999.
- Vacancy Rates: Generally in the 12% range.
- Evaluation: Leasing specialists say the slowdown may have a silver lining in staving off a potential oversupply. "Overall, I think we'll see higher vacancies in 2000," says Darryl Robinson, office leasing specialist, Terranova Corp., Miami. "The state still has a strong economy, and there's a lot of money to build new projects, so overall 2000 will be a positive year."
- Hot Spot: Major warehouse and industrial markets. About 7.2 million square feet was under way at year-end, compared with 5.7 million in early 1999. Some local markets may face a potential oversupply, but with warehouse vacancy rates in single digits throughout the state, Florida is unlikely to see a glut of office or industrial space, and there is little concern about overbuilding. The lower cost of building industrial properties allows developers to match demand and supply more closely. "The lesson learned in the last round of overbuilding was that if we can find the right balance, we can maintain a healthy long-term real estate platform," says Ray Sandelli, senior managing director-Florida, CB Richard Ellis in Tampa. "The criteria for building is more stringent now than in the 1980s, and developers and lenders are looking more closely at the economic data that drives the market. We're building for the right reasons today." Adds Larry Richey, senior managing director, Cushman & Wakefield, Tampa: "We're not overbuilding anywhere. The opportunities for development in industrial space look good for the rest of 2000 all across the state."
Regional Wrap-Ups...
Miami-Dade
Under Construction: 2.85 million square feet.
Risk of Overbuilding: Moderate. With four projects under way on Brickell Avenue, "If all the office towers came on line at the exact same moment, there would be more competition for the same tenants," says William Holly, managing director, Insignia/ESG, Miami, which is leasing the Espirito Santo Bank development. But, he says, "Each project is unique in its mixed-use nature."
Highlights:
- Miami-Dade, Florida's largest office market, is leading the state in new construction after trailing metropolitan Orlando for several years. Projects include office buildings in Coral Gables and the suburbs as well as downtown.
- The 500,000-sq.-ft. Barclay's Financial Center -- the first office tower built on Brickell Avenue in more than a decade -- is scheduled to open in December. The largest of four office projects under way, Barclay's is already attracting tenants such as Barclay's Bank and Hunton & Williams, a Virginia law firm. The development by The Rilea Group and MDM Group is already changing the dynamics of the downtown Miami marketplace. "There's a surge of activity by landlords to sign up existing tenants and keep them in their current locations," says Robinson. "A lot of landlords are concerned about Barclay's. It's really been a landlord's market for many years, but that is already changing."
-A mixed-use project by Espirito Santo Bank on Brickell Avenue will have 260,000 square feet of office space, including the bank's new headquarters, a hotel and 144 condominiums.
- Also on Brickell, Millennium Partners, a New York firm, is planning Four Seasons Tower, a 65-story development with 240,000 square feet of office space, plus two hotels, a sports complex and condominiums on the top floors.
- Transal will begin construction this fall on a 170,000-sq.-ft. office building on Brickell Avenue. Collectively, the four new buildings represent about a 20% increase in the total office inventory, says Peter Harrison, senior managing director, Cushman & Wakefield, Miami. "That's a lot of space coming into any given market. I think the Barclay's project will do OK because there is sufficient pent-up demand. But after that, occupancy rates may take a dip."
- Demand from international shippers and transportation companies remains strong for facilities in business parks near Miami International Airport. "The inventory of both land and products is dwindling fast," says Rick Nash, president of The Easton Group, which is developing International Commerce Park. "We are seeing heightened interest from Latin American and local companies that require easy access to the port, airport and highways and from telecom and e-commerce companies." Since land is fast-disappearing, higher lease and land rates should continue, Nash predicts. Adds Harrison: "There's a lot of development activity, but major users continue to come into the market, and there are expansions as well. Rates are likely to increase, and we see no problems at all."
Fort Lauderdale
Under Construction: 2.78 million square feet.
Risk of Overbuilding: Low. "Demand in both downtown and suburban markets has been pretty consistent," says Doug Eagon, president of the Stiles Corp. "We just try to stay prudent with the amount of space we build in relation to absorption."
Highlights:
- Stiles Corp. is developing two downtown projects: 300 Las Olas Place, a 100,000-sq.-ft. facility to be completed in December, and Las Olas City Center, a 28-story office/retail tower with 375,000 square feet to be finished in 2002.
- In Cypress Creek, Broward's other major office market, no new construction is under way. However, The Swerdlow Real Estate Group, with the Florida Department of Transportation, is planning to convert a park-and-ride lot into a $150-million office and hotel complex with an improved commuter facility.
Palm Beach County
Under Construction: 727,000 square feet.
Risk of Overbuilding: Low. "There are no serious problems on the horizon," says Harrison. "Boca Raton, in particular, has been successful in attracting technology companies taking large chunks of space."
Highlights:
- In Boca Raton, the First Union Plaza, designed by Philip Johnson, the renowned 93-year-old architect, is under way. About half of the building's 88,000 square feet of office space has already been leased.
- Palm Beach County is seeing significant new office construction in downtown West Palm Beach, including the CityPlace project set to open in October.
Orlando
Under Construction: 2.98 million square feet.
Risk of Overbuilding: Low-moderate.
Lease rates are a bargain, thanks to strong job growth in central Florida. The question is the future: In the red-hot Orlando metropolitan market, about 2 million square feet of office space was absorbed last year. However, developers built another 2.7 million square feet, primarily in suburban locations such as Lake Mary/Heathrow.
Richey believes demand for space in central Florida is likely to slow this year, increasing the threat of overbuilding in 2001. "To expect 1999's high level of demand and absorption to continue is unrealistic," Richey says. "There is no reason to believe Orlando will continue to see this level of activity. I think 1 million to 1.2 million square feet of absorption is far more realistic."
Highlights:
- New office towers are now under way in downtown Orlando, including Lincoln Plaza at SunTrust Center.
- In the industrial markets, Orlando is seeing more distribution space, according to Sandelli. "We're seeing more build-to-suits for specific users. There's not a lot of spec space being built."
TampaBay
Under Construction: 1.45 million square feet (Pinellas and Hillsborough counties).
Risk of Overbuilding: Low-moderate. The addition of 60,000 jobs in 1999 -- the highest employment gains in the past decade -- contributed to high absorption of office space: 1 million square feet in Hillsborough County and another 700,000 square feet in Pinellas County. "From a demand perspective, that's as good a year as you can have," Richey says. "But a good bit of the new construction now in the works is speculative."
Highlights:
- Most demand for Tampa Bay office space is occurring in the suburbs, and the Tampa, St. Petersburg and Clearwater business districts are the weakest sectors of the area market. "There is a lot of interest by employers in creating a campus environment," says Sandelli. "That is more attractive to employees, which is a key point in our tight labor market."
Jacksonville
Under Construction: 2.67 million square feet.
Risk of Overbuilding: Low. With Jacksonville's 16% vacancy rate, there's plenty of existing space for tenants.
Jacksonville's rental rates are among the lowest in the state, typically in the $16-a-square-foot range, says Richey. "From an economic standpoint, Jacksonville's office space is a bargain, both downtown and in the suburbs."
Highlights:
- Jacksonville's office market has the lowest level of new construction among Florida's major metropolitan areas. Most of the activity is on the southeast side, including The Concourse, a 297,000-sq.-ft. complex in Southpoint being developed by Stiles Corp. Two of three speculative buildings have been completed. "While this market is not as active as south Florida, it's been a good market for us," says Eagon. "We feel comfortable now in going ahead with the third building."
- While international business dominates south Florida's industrial market, consumer demand is king in northern Florida. "Retailers and manufacturers need to store goods, and population growth is fueling demand," says Richey.
Southwest Florida
Highlights:
- Lakewood Ranch in Sarasota is the biggie. SMR Communities is building a 226,000-sq.-ft. office building for FCCI Insurance Group in its fast-growing Corporate Park. Employers like the park's suburban location along I-75 in the master-planned community, says spokeswoman Lisa Rubenstein. Over the next 15 years, 4-million to 5-million square feet of office space and 1-million to 2-million square feet of industrial space are planned at Lakewood Ranch.
Northwest Florida
Highlights:
- In Tallahassee, new office construction consists of scattered, smaller buildings, says Chip Hartung, broker/owner Coldwell Banker Hartung & Associates. One example is Commonwealth Commerce Center, a 33,000-sq.-ft. building completed in 1999 and now two-thirds leased.
- Tallahassee's year-end office vacancy rate was 5.34%, said Hartung, who expects little change this year. "Downtown continues to be very stable, although we expect some vacancies as several law firms are relocating to the suburbs."
- Pensacola has seen little new construction. "Our Class A office market is above 95% occupied," says Bob Smith, president, Smith & Co. "This is a conservative town, and there's not a lot of speculation." Many downtown buildings have been renovated, but the only new office activity is in the 10,000-15,000-sq.-ft. range.