Q2 Market Report | Office by Alex Makki

MARKET VIEW | OFFICE | SOUTH FLORIDA MIAMI-DADE | BROWARD | PALM BEACH

Q2 2018

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | APARTMENT | Q1 2018

SOFTENING DEMAND IN MIAMI-

MARKET TRENDS

DADE WITH LARGE AMOUNTS

Q2 2018 OFFICE REPORT

OF NEW OFFICE SPACE IN DEVELOPMENT PIPELINE

EXECUTIVE SUMMARY The Miami office market continues to benefit from steady demand via strong growth in officeusing employment. Specifically, job growth in the Financial Activities and Professional and Business Services sectors outpaced the national average in 2017. Due to years of limited development and strong demand, vacancies have remained near cyclical lows. Developers were active in 2017, delivering almost 750,000 SF of new office space. Even with the uptick in development, vacancies remain flat, leaving Miami in a good spot to tackle another wave of deliveries set to hit the market in the next few years. Due to strong fundamentals this cycle, rent growth reached almost 8% in early 2016 but has since declined, mirroring a nationwide trend. Sales volume has dipped off recently after peaking to almost $2.2 billion in 2016, but it is still in line with the historical average.

Q2 2018

12 MONTH CHANGE

FORECAST

VACANCY

8.65%

NET ABSORPTION SF

-8,636

2,203,784

322,553

GROSS LEASE RATE

35.67

CAP RATE

5.52%

205

CONSTRUCTION SF

COMPLETIONS SF

$/SF

$ SALES VOLUME

541.25M

RELATIVE TO PRIOR PERIOD | SOURCE: COSTAR PROPERTY®

ECONOMIC OVERVIEW 1 YR CHANGE

Q2 2018

CHANGE

UNEMPLOYMENT RATE

4.5%

- 13.4%

POPULATION GROWTH

2,774,110

+ 1.20%

MEDIAN HOUSEHOLD INCOME

48,476

+ 3.88%

LABOR FORCE

1,188,800

+ 1.39%

CHANGE AS PER YEAR-TO-DATE | SOURCE: US DEPARTMENT OF LABOR STATISTICS

OUTLOOK Miami Dade’s economy is growing at a high rate with record low unemployment figures of 4.5% and 1.4% year over year labor force increase which should positively impact the office market. Moreover the tax reform will further fuel the economy, which will benefit Miami Dade’s office market. However the 2.2 million SF currently under development exceed current demand and will likely yield to increased vacancies in the near term.

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q2 2018 2

MARKET ACTIVITY

COMPLETIONS, ABSORPTION AND VACANCY TRENDS COMPLETIONS

Office construction has returned in force to the Miami metro. The supply pipeline was relatively empty leading up to 2016, when over 500,000 SF delivered, and that momentum has since been maintained. About 800,000 SF of new office space came on line metrowide in 2017, and over a million SF are expected to deliver by the end of 2018. Two MiamiCentral and Three MiamiCentral, the office phases of the mixed-use development centered on the future All Aboard Florida passenger rail station, are adding more than 300,000 SF of office space to the Downtown Miami Submarket. And several corporate office and medical office buildings completed in Aventura and Coral Gables in the first half of 2018. Co-working options – offered by shared office space providers such as WeWork, Axis and Quest – are on the rise in Miami. The Miami Downtown Development Authority (DDA) reports at least 30 co-working spaces have popped up in downtown Miami alone and have attracted a number of large corporations as tenants. Twitter, Spotify, TripAdvisor, Microsoft and Wix have all taken shared office space there in the last few years.

ABSORPTION

VACANCY

SOURCE: COSTAR PROPERTY®

500,000

9.40% 9.20%

400,000

9.00% 300,000

8.80%

200,000

8.60%

100,000

8.40% 8.20%

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

(100,000)

8.00% 7.80%

(200,000)

7.60%

AVERAGE ASKING RENTS TRENDS CLASS A

CLASS B

OVERALL

SOURCE: COSTAR PROPERTY®

45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00

Wynwood has emerged as a hotspot for millennials and those who may identify as creatives, urbanities, foodies or entrepreneurs. As a result, the neighborhood’s construction pipeline has ramped up, with many more projects in the proposal pipeline. A total of three buildings under construction in Wynwood make up 85% of the current inventory under construction in the entirety of what is considered the Downtown Office submarket. All three developments are mixeduse projects in that they also incorporate a retail component. The office spaces seem to appeal to co-working companies, as at least two have already pre-leased space there.

5.00 0.00

Q1 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

PRICE TRENDS CAP RATE

$/SF

$ VOLUME

SOURCE: REAL CAPITAL ANALYTICS

852 M

400

9.00%

792 M

783 M

8.00%

350

7.00%

300

541 M

250

449 M 200

Due to surging land costs, ground-up opportunities are pricey, and investments in existing buildings have become more common in Miami. After seven consecutive years of sales volume increase, total sales volume dropped off in 2017.The largest trade in 2018 was the sale of the Sabadell Financial Center in June. The 500,000-SF, Class A office tower sold to Kohlberg Kravis Roberts & Co for $248.5 million (475/SF), and the sale generated a 4.8% cap rate.

Q2 2017

5.00%

356 M

354 M

4.00%

150

266 M

250 M

200 M

100

3.00%

244 M

2.00%

102 M

50 -

Q3 2015

Q4 2015

Q1 2016

6.00%

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

1.00%

Q2 2018

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q2 2018

0.00%

OFFICE STATISTICS SUBMARKET

TYPE

INVENTORY

VAC. (%)

YTD NET ABS.

YTD DELIV.

UNDER CONSTR.

EFF. RENTS/SF YTD VOLUME $

CAP RATE %

$/SF

Aventura

Total

2,145,790

12.63%

118,583

229,168

244,544

45.71

18.67 M

378.94

1,117,692

12.11%

44,958

74,336

204,544

47.83

5.17 M

284.15

901,650

14.39%

76,065

154,832

40,000

43.07

13.50 M

568.52

Biscayne Corridor Total

2,880,557

12.45%

(30,368)

40,000

34.45

39.55 M

503.17

699,000

21.85%

40,000

35.00

1,121,765

9.55%

(24,542)

39.45

17.51 M

389.84

Brickell

Total

9,599,464

9.74%

(23,150)

100,000

44.07

365.57 M

4.80

502.94

5,569,098

11.42%

(25,424)

100,000

49.68

303.12 M

4.80

449.66

3,707,777

7.98%

2,274

34.36

33.00 M

576.77

Coconut Grove

Total

2,263,938

10.13%

(37,930)

225,055

40.73

4.40 M

566.03

695,770

20.99%

(12,936)

225,055

42.10

1,229,005

6.13%

(19,739)

35.96

2.00 M

656.81

Coral Gables

Total

11,127,292

8.16%

(10,185)

132,381

387,667

39.68

58.04 M

519.44

4,974,229

11.35%

(25,137)

132,381

387,667

42.68

11.29 M

441.84

4,227,787

7.21%

22,315

35.77

10.61 M

637.08

Coral Way

Total

2,365,841

3.73%

(33,763)

62,017

30.86

13.73 M

338.38

84,248

3.68%

(3,100)

41,117

32.00

1,161,284

4.59%

(20,576)

20,900

32.13

4.20 M

156.41

Downtown Miami

Total

12,152,803

16.91%

56,885

190,583

39.06

167.89 M

4.50

384.12

5,362,165

20.80%

72,802

190,583

45.27

127.00 M

282.80

5,555,315

14.21%

(10,538)

31.13

21.74 M

4.50

497.44

Kendall

Total

435,614

0.22%

1,216

23.50

0.00%

173,009

0.00%

1,216

23.50

Medley/Hialeah

Total

11,706,932

5.87%

59,877

35,340

31.09

104.24 M

6.37

233.21

1,790,623

11.46%

48,391

37.56

5.48 M

165.29

6,440,433

6.52%

8,545

35,340

28.87

88.29 M

6.37

184.22

Miami

Total

4,337,399

2.70%

(4,479)

8,000

26.59

25.96 M

7.10

159.59

793,962

1.88%

(6,704)

26.73

1,866,398

2.88%

(88)

8,000

26.00

21.65 M

7.10

63.66

Miami Airport

Total

7,253,410

3.68%

2,379

264,873

37.03

76.76 M

6.50

500.62

1,185,197

4.71%

(1,635)

145,486

51.36

2,819,059

3.73%

(11,402)

119,387

35.51

10.20 M

365.19

Miami Beach

Total

19,354,686

7.45%

44,663

331,930

30.35

245.41 M

6.06

182.07

5,855,407

11.17%

(49,399)

312,407

34.32

98.00 M

279.43

10,646,940

6.64%

80,206

19,523

27.05

101.59 M

6.06

168.64

Miami Lakes

Total

4,789,150

6.84%

(39,396)

45.85

64.42 M

5.88

751.06

1,025,945

7.23%

11,767

51.48

38.83 M

5.88

485.55

2,657,531

8.05%

(51,296)

43.33

16.76 M

376.03

Miami Dade Central Total

3,558,099

14.34%

57,545

89,462

22.29

7.95 M

7.25

201.50

417,048

21.56%

(8,677)

25.79

1.13 M

188.33

2,715,770

14.25%

60,318

89,462

22.34

4.93 M

7.25

215.52

Northeast Dade

Total

6,582,118

10.66%

(247,511)

235,222

29.32

10.54 M

154.42

273,897

4.19%

14,211

235,222

51.29

2,756,889

20.48%

(261,599)

25.52

4.12 M

175.31

Outlying Miami-Dade

Total

182,082

0.00%

0.41 M

0.00%

164,443

0.00%

0.41 M

7.72

South Dade

Total

2,442,955

6.84%

8,127

18,480

23.08

12.37 M

259.18

0.00%

1,486,275

9.55%

(523)

18,480

24.33

10.65 M

774.92

West Miami

Total

1,834,386

1.07%

(6,331)

5,951

26.63

7.77 M

283.32

46,118

0.00%

602,283

1.03%

(1,809)

5,951

24.86

4.68 M

241.23

Total

105,012,516

8.65%

(83,838)

396,889

2,203,784

35.67

1223.68 M

5.46

393.24

29,890,399

12.91%

59,117

206,717

1,882,081

42.30

590.02 M

4.92

383.09

50,233,613

8.67%

(151,173)

190,172

321,703

30.51

365.81 M

6.15

298.08

Source: CoStar PropertyÂ® ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q2 2018

7.72

SIGNIFICANT LEASE TRANSACTIONS PROPERTY ADDRESS

TENANT NAME

SIZE

LEASE TYPE

LEASE RATE

SUBMARKET

152 NW 168th St

N/A

26,200

Direct

$30.00 MG

Northeast Dade

161 NW 6th St

Viacom

24,009

Direct

$29.50 NNN

Downtown Miami

201 S Biscayne Blvd

Duane Morris

23,128

Direct

$60.00

Downtown Miami

777 Brickell Ave

N/A

20,061

Direct

$45.00 FS

Brickell

600 Brickell Ave

N/A

16,000

Direct

$65.00 FS

Brickell

SIGNIFICANT SALES TRANSACTIONS PROPERTY

BUYERS NAME

SIZE

SALE PRICE $

$/SF

SUBMARKET

Sabadell Financial Center

Kohlberg Kravis Roberts & Co. L.P.

64,617

248,500,000

3,846

Brickell

SunTrust International Center

PCCP LLC

23,206

127,000,000

5,473

Downtown Miami

Northern Trust Bank building

Cardone Real Estate Acquisitions LLC

4,800

13,500,000

2,813

Aventura

Multi-Property Sale

Lopez Levi Lowenstein Glinsky

24,422

13,234,006

542

Coral Gables

The White Building

Mana Wynwood

26,853

12,900,000

480

Downtown Miami

MAJOR DEVELOPMENT PIPELINE PROPERTY ADDRESS

COMPLETION

SIZE

DEVELOPER

SUBMARKET

The Plaza Coral Gables

Q2 2020

289,998

Agave Holdings

Coral Gables

The Gateway at Wynwood

Q4 2020

250,000

Rose & Berg Realty

Downtown

Future Burger King HQ

Q4 2018

150,000

The Hogan Group

Miami Airport

Doral Dolphin Professional

Q2 2019

106,000

Procacci Development

Miami Airport

Ivory 214

Q3 2018

104,544

Shalev Dev Group

Aventura

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | APARTMENT | Q4 2017

SOFTENING DEMAND IN BROWARD’S

MARKET TRENDS

OFFICE MARKET WITH MODERATE

Q2 2018 OFFICE REPORT

SUPPLY IN PIPELINE

EXECUTIVE SUMMARY The Fort Lauderdale recovery continues. Early on, employment growth was supported by gains in the low-wage sectors, but recent growth in white-collar jobs should continue to drive office demand for the next few years. Vacancy, at about 9%, is on par with rates in Miami and Palm Beach, but landlords have been able to maintain much stronger rent growth here. Part of the reason fundamentals have been so sound is the relative lack of building. Since 2010, metro deliveries have amounted to less than 15% of the historical annual average. These conditions have enabled significant price appreciation and sales volume. But activity cooled off considerably in 2017, when sales volume totaled about half that of 2016.

12 MONTH CHANGE

FORECAST

8.87%

NET ABSORPTION SF

-71,310

CONSTRUCTION SF

917,699

21,413

GROSS LEASE RATE

28.30

CAP RATE

7.32%

140

137.10M

Q2 2018 VACANCY

COMPLETIONS SF

$/SF

$ SALES VOLUME

RELATIVE TO PRIOR PERIOD | SOURCE: COSTAR PROPERTY®

ECONOMIC OVERVIEW 1 YR CHANGE

Q2 2018

CHANGE

UNEMPLOYMENT RATE

3.5%

- 7.9%

POPULATION GROWTH

1,968,270

+ 1.67%

MEDIAN HOUSEHOLD INCOME

57,890

+ 3.91%

LABOR FORCE

848,880

+ 1.26%

CHANGE AS PER YEAR-TO-DATE | SOURCE: US DEPARTMENT OF LABOR STATISTICS

OUTLOOK Market fundamentals remain positive for Broward’s office market. Vacancy rates are near a cycle low and rent growth is still strong. Additionally, a lack of supply has generated greater competition for space, and landlords have been able to negotiate higher rents as a result. Even with significant growth, rents should remain below the national average in the near term. Rents are unlikely to surpass rates in neighboring Miami, keeping Fort Lauderdale viable as a less-expensive alternative.

ONE COMMERCIAL REAL ESTATE | BROWARD | OFFICE | Q2 2018

MARKET ACTIVITY

COMPLETIONS, ABSORPTION AND VACANCY TRENDS COMPLETIONS

Rents remain strong, with vacancy near a cycle low. While growth has decelerated slightly since last year, it is still strong, at about 5.6% as of mid2018. Additionally, a lack of supply has generated greater competition for space, and landlords have been able to negotiate higher rents as a result. Even with significant growth, rents should remain below the national average in the near term. Rents are unlikely to surpass rates in neighboring Miami, keeping Fort Lauderdale viable as a less-expensive alternative. Leasing has picked up, and most large leases signed in the last two years have been for spaces in Sawgrass and Plantation. One of the past year’s largest deals was for Centerfield, a sales and marketing company that signed a five-year lease for four floors of the Jacaranda Park of Commerce in Plantation. In another notable signing, Sheridan Healthcare took more than 85,000 SF in a recently renovated building in Plantation. Downtown Fort Lauderdale is also seeing stronger leasing activity, and is beginning to attract tenants from outside the state, as evidenced by the recent lease of about 60,000 SF by electronics company Kemet, who relocated their headquarters from Greenville, SC to the 1 E Broward building.

ABSORPTION

SOURCE: COSTAR PROPERTY®

400,000

12.00%

300,000

10.00%

200,000 100,000

8.00%

Q1 2017

(100,000)

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

(200,000)

6.00% 4.00%

(300,000)

2.00%

(400,000) (500,000)

0.00%

AVERAGE ASKING RENTS TRENDS CLASS A

CLASS B

OVERALL

SOURCE: COSTAR PROPERTY®

40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00

Q1 2017

Construction is finally ramping up in Fort Lauderdale. Over 400,000 SF of space is being built and more than 200,000 SF is projected to deliver by mid-2018. In regard to other South Florida metros, Fort Lauderdale has delivered about as much net office space as Miami over the last four years, but will be topped by Miami in 2018. Fort Lauderdale has also experienced almost three times as much construction as Palm Beach over that period.

VACANCY

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

PRICE TRENDS CAP RATE

$/SF

$ VOLUME

300

SOURCE: REAL CAPITAL ANALYTICS

9.00%

443 M

8.00% 250 7.00%

353 M 200

270 M

264 M

266 M

150

6.00%

285 M 224 M

208 M

5.00%

225 M

4.00%

100

132 M

143 M

137 M

3.00% 2.00%

50 1.00% -

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

ONE COMMERCIAL REAL ESTATE | BROWARD | OFFICE | Q2 2018

0.00%

OFFICE STATISTICS SUBMARKET

TYPE

INVENTORY

VAC. (%)

YTD NET ABS. YTD DELIV. SF

UNDER CONSTR.

EFF. RENTS/SF

YTD VOLUME $

CAP RATE %

Commercial Blvd

Total

1,429,540

12.73%

8,976

21.46

0.66 M

233,266

7.32%

31,630

24.71

0.23 M

631,507

22.34%

(12,473)

21.16

0.26 M

Cypress Creek

Total

7,959,850

12.69%

(27,071)

81,709

24.97

53.12 M

2,433,730

15.40%

27,126

81,709

28.02

4,339,175

13.04%

(59,054)

22.94

42.77 M

Downtown Fort Lauderdale Total

9,182,955

9.67%

(140,396)

127,920

39.11

191.02 M

5.55

4,606,182

14.91%

(41,110)

95,532

41.60

119.33 M

2,169,831

4.36%

(19,137)

32,388

31.44

46.15 M

4.90

Fort Lauderdale

Total

10,968,573

8.90%

(24,809)

8,000

160,000

24.47

75.61 M

6.23

959,668

14.50%

9,620

29.12

5,161,833

12.69%

(62,157)

8,000

160,000

24.73

49.06 M

6.07

Hallandale

Total

1,622,782

7.98%

(16,526)

27,744

29.22

3.16 M

27,744

40.17%

16,598

27,744

38.00

676,478

9.27%

(35,735)

28.16

0.69 M

Hollywood

Total

6,184,368

4.80%

34,443

6,800

28.20

23.26 M

6.96

507,144

12.94%

10,383

33.32

2,787,234

5.19%

21,584

6,800

28.89

2.30 M

NW Broward/Coral Springs Total

5,122,391

8.80%

20,807

13,413

143,360

25.31

55.28 M

6.73

914,819

14.49%

(14,227)

27.85

11.54 M

2,765,411

10.11%

4,004

13,413

143,360

24.12

34.31 M

6.73

Outlying Broward County

Total

28,296

0.00%

28,296

0.00%

Plantation

Total

8,669,448

12.48%

(342,741)

27.15

134.97 M

5.58

2,299,583

15.20%

(39,975)

33.09

80.72 M

6.25

4,211,028

15.84%

(340,110)

22.38

44.51 M

5.25

Pompano Beach

Total

6,327,380

8.75%

(33,892)

12,000

87,000

24.00

44.80 M

6.09

483,680

27.82%

(57,251)

29.22

6.65 M

3,736,065

8.59%

(51,441)

12,000

87,000

22.88

21.21 M

5.00

Sawgrass Park

Total

4,271,890

6.67%

24,549

26.82

156.48 M

6.66

2,250,881

5.85%

42,196

31.49

127.50 M

6.59

1,792,685

7.55%

(17,647)

21.32

28.98 M

6.85

Southwest Broward

Total

9,023,662

4.71%

(19,935)

310,910

31.30

91.20 M

6.52

3,570,952

7.55%

(680)

300,910

33.23

54.00 M

6.50

4,623,609

2.97%

(21,695)

10,000

27.00

22.39 M

6.14

Total

70,791,135

8.87%

(516,595)

61,157

917,699

28.30

829.54 M

6.12

18,287,649

12.65%

(15,690)

27,744

478,151

33.95

399.97 M

6.47

32,923,152

9.73%

(593,861)

33,413

439,548

24.33

292.62 M

5.80

Source: CoStar PropertyÂ® ONE COMMERCIAL REAL ESTATE | BROWARD | OFFICE | Q2 2018

$/SF

SIGNIFICANT LEASE TRANSACTIONS PROPERTY ADDRESS

TENANT NAME

SIZE

300 NW 82nd St

Aetna

78,605

1613 NW 136th Ave

N/A

77,006

1571 Sawgras Corporate Park

Cigna

Miramar Park of Commerce 101 NE 3rd Ave

LEASE TYPE

LEASE RATE

SUBMARKET

Direct

$23.50 Net

Plantation

Direct

$18.00 + Elec & Clean

Sawgrass Park

49,868

Direct

$19.50 NNN

Sawgrass Park

N/A

26,347

Direct

$13.95 NNN

SW Broward

N/A

19,195

Direct

$27.00 NNN

Downtown Ft. Lauderdale

SIGNIFICANT SALES TRANSACTIONS PROPERTY

BUYER NAME

SIZE

Sawgrass Commerce Center Bldg A

IP Capital Partners, LLC

69,814

Sawgrass Commerce Center Bldg B

IP Capital Partners, LLC

83,374

One Charter Place

Groupe Petra

Pines Avenue Plaza Andrew Square Pro. & Medical Bld

SALES PRICE $

$/SF

SUBMARKET

57,400,000

822

Sawgrass Park

51,100,000

613

Sawgrass Park

80,489

37,309,603

464

NW Broward/Coral Springs

Academica Corporation

57,530

24,120,042

419

Southwest Broward

1st Step Behavioral

45,952

19,029,958

414

Pompano Beach

MAJOR DEVELOPMENT PIPELINE PROPERTY ADDRESS

COMPLETION

SIZE

DEVELOPER

SUBMARKET

550 Building

Q2 2019

95,532

Douglas Management Realty

Downtown Ft. Lauderdale

300 Hillsboro Technology Dr

Q1 2018

87,068

Butters Construction

Pompano

Cypress Creek medical Pavillon

Q2 2018

81,709

ANF Real Estate Group

Cypress Creek

Progressive Insurance Regional Office Q1 2019

79,200

Progressive Insurance

SW Broward

9530 W Sample Rd

74,000

Kaufmann Lynn Construction

Coral Springs

Q2 2018

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | APARTMENT | Q4 2017

PALM BEACH STRONG

MARKET TRENDS

EMPLOYMENT GROWTH WILL

Q2 2018 OFFICE REPORT

CONTINUE TO DRIVE VACANCY RATES DOWN

12 MONTH CHANGE

Q2 2018

EXECUTIVE SUMMARY For the majority of the cycle, Palm Beach has had strong and consistent demand, and a relatively low level of construction over the cycle has limited supply-side pressure. Office-using employment growth continues to be a driving force behind the economic improvement across the metro, concentrated in the business hubs of Boca Raton and West Palm Beach. Consequently, landlords have been able to push rents, and rent growth has been outperforming the national average.

FORECAST

VACANCY

10.19%

NET ABSORPTION SF

10,367

547,573

COMPLETIONS SF

3,600

GROSS LEASE RATE

29.73

CAP RATE

7.08%

121

330.92M

CONSTRUCTION SF

$/SF

$ SALES VOLUME

RELATIVE TO PRIOR PERIOD | SOURCE: COSTAR PROPERTY®

ECONOMIC OVERVIEW 1 YR CHANGE

Q2 2018

CHANGE

UNEMPLOYMENT RATE

3.8%

- 19.1%

POPULATION GROWTH

1,504,590

+ 2.35%

MEDIAN HOUSEHOLD INCOME

61,151

+ 4.25%

LABOR FORCE

622,200

+ 0.70%

CHANGE AS PER YEAR-TO-DATE | SOURCE: US DEPARTMENT OF LABOR STATISTICS

OUTLOOK Palm Beach’s economy is growing at a high rate with record low unemployment figures of 3.8% and 0.7% year over year labor force increase which should positively impact the office market. Moreover the tax reform will further fuel the economy, which will benefit Palm Beach’s office market. As suplly in the market place is expected to remain low, vacancy rates will remain stable with slowly growing rental rates.

ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q2 2018 10

MARKET ACTIVITY Deliveries of new buildings have been very sparse in this cycle. Less than 300,000 SF are under construction and expected to deliver in 2018. About half of that is one tower in the North Palm Beach Submarket. Called the South Tower, it is part of a two-tower project in the Gardens Corporate Center. The complementary North Tower is expected to break ground in mid-2018. Together, the buildings will bring 224,000 SF to the metro.

COMPLETIONS, ABSORPTION AND VACANCY TRENDS COMPLETIONS

At nearly $30/SF, office rents are higher here than in any other Florida metro outside of Miami. Rent growth did slow down over the last year but remains above the national average. Demand was incredible in 2016, which pushed rent growth past 10% for high-quality assets. Despite slowing growth, asking rents have made a full recovery and passed their pre-recession highs.

VACANCY

SOURCE: COSTAR PROPERTY®

11.50%

250,000 200,000

11.00%

150,000 100,000

10.50%

50,000 10.00%

Q1 2017

(50,000)

Several large projects have been proposed for the CBD, including a large mixed-use complex with 300,000 SF of office space called Transit Village Office, expected to begin construction in late 2018. The 25-story project would include a public transit gateway that connects the Tri-Rail, Amtrak, buses, trolley, and ground transportation.

ABSORPTION

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018 9.50%

(100,000) (150,000)

9.00%

AVERAGE ASKING RENTS TRENDS CLASS A

CLASS B

OVERALL

SOURCE: COSTAR PROPERTY®

40.00 35.00 30.00

The vacancy decline in Palm Beach County has been among the most dramatic in Florida over the last five years. Although vacancies are still among the highest within Southeast markets, levels have always been higher in Palm Beach than in nearby metros, averaging around 12.5% since 2000. The real story is the significant vacancy compression that has ranked—and will continue to rank—among the best for metros nationally through the forecast. Investment has picked up considerably the last four years. The Palm Beach office market is relatively small, about half of Miami’s in terms of existing rentable building area, and it lacks a true central business district altogether. As a result, investors looking for high-quality assets check business hubs in Boca Raton and Delray Beach. Accordingly, sales have picked up in a number of these submarkets as investors attempt to capitalize on the improving economy and healthy fundamentals. Overall transaction volume grew slightly year over year, but sales decreased to $289 million in the last quarter. Acquisition yields for stabilized properties were in the 6.5 % range for Class A assets, and between 6.5% and 7.5% for Class B. Palm Beach is a great market for investors looking for relatively high yields in well balanced economic environment.

25.00 20.00 15.00 10.00 5.00 0.00

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

PRICE TRENDS CAP RATE

$/SF

$ VOLUME

SOURCE: REAL CAPITAL ANALYTICS

328 M

331 M

323 M

8.30%

270 250

7.80%

230

206 M

220 M

218 M 7.30%

186 M

210

160 M

190

133 M 106 M

170

6.80%

122 M

122 M 6.30%

150 5.80%

130 110

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

5.30%

ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q2 2018

OFFICE STATISTICS SUBMARKET

TYPE

INVENTORY

VAC. (%)

YTD NET ABS. YTD DELIV.

UNDER CONSTR.

EFF. RENTS/SF

YTD VOLUME $

CAP RATE %

$/SF

Boca Raton East

Total

5,969,768

8.91%

66,003

30.77

1,788,459

13.56%

57,181

33.65

2,860,818

8.79%

(11,612)

27.96

Boca Raton North

Total

7,125,651

14.38%

71,826

27.10

3,647,738

13.16%

100,193

28.72

3,125,036

17.36%

(28,319)

24.75

Boca Raton West

Total

4,521,155

13.51%

(40,276)

35.59

2,396,640

18.08%

(38,765)

38.87

1,993,247

8.05%

(2,436)

29.63

Boynton/Lantana

Total

2,779,962

12.29%

(73,246)

26.12

14.17 M

8.30

228.40

234,112

1.93%

130

33.57

1,997,022

15.57%

(61,083)

26.06

9.25 M

346.59

Delray Beach

Total

3,987,278

7.78%

13,321

149,608

31.85

30.81 M

6.50

329.64

66,845

0.22%

2,711

65,308

48.25

2,615,801

8.62%

8,537

84,300

29.70

5.37 M

6.50

338.73

Jupiter

Total

3,610,624

5.62%

4,077

27.19

22.54 M

6.50

206.62

716,414

5.09%

1,751

33.59

14.99 M

6.50

156.22

2,269,057

5.61%

13,308

26.36

4.78 M

193.40

North Palm Beach

Total

8,584,732

9.04%

(67,427)

9,400

223,943

28.53

106.04 M

7.90

143.03

1,611,231

11.71%

(15,021)

223,943

35.80

70.10 M

8.40

221.83

5,484,062

8.76%

(27,053)

9,400

25.28

22.57 M

8.10

155.95

Outlying Palm Beach City Total

1,567,203

9.83%

(5,282)

3,600

131,499

28.67

37,500

94.58%

26,500

34.85

1,137,518

7.58%

4,738

3,600

104,999

28.65

Palm Beach

Total

1,155,111

15.69%

(9,358)

58.78

72.42 M

7.82

264.11

118,913

14.33%

1,901

60.16

30.70 M

4.40

613.79

708,093

20.28%

(12,659)

59.42

40.12 M

11.76

241.90

Palm Springs/Lake Worth Total

1,018,792

5.07%

9,931

12,867

28.12

17.18 M

10.84

197.67

50,577

0.00%

549,224

4.45%

3,861

12,867

31.22

13.04 M

246.29

Total

1,765,491

5.61%

(873)

8,800

17,362

28.26

3.28 M

Royal Palm Beach/Wellington 706.14

149,705

9.25%

(4,596)

33.11

1,181,080

6.35%

5,022

8,800

17,362

28.49

1.11 M

185.50

West Palm Beach

Total

7,915,403

9.41%

35,025

12,294

23.73

169.12 M

5.40

240.27

1,199,331

12.61%

(11,922)

27.88

65.05 M

228.45

3,857,211

11.42%

59,184

12,294

23.51

71.60 M

7.00

181.73

West Palm Beach CBD

Total

5,402,497

11.39%

(109,258)

34.13

2,583,040

12.90%

(38,756)

40.84

1,927,540

9.45%

(64,247)

23.22

Total

55,403,667

10.19%

(105,537)

21,800

547,573

29.73

435.57 M

6.87

226.59

14,600,505

13.26%

54,807

315,751

34.48

180.84 M

7.09

285.32

29,705,709

10.27%

(112,759)

21,800

231,822

27.36

167.84 M

8.53

212.12

Source: CoStar PropertyÂ® ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q2 2018

SIGNIFICANT LEASE TRANSACTIONS PROPERTY ADDRESS

BUYER NAME

SIZE

SALES PRICE $

$/SF

SUBMARKET

Boca Raton Innovation Campus

MobileHelp

54,000

Direct

$15.00

Boca Raton

The Park at Broken Sound

Hollander

43,427

Direct

$16.00

Boca Raton

Quantum Park at Boynton

N/A

35,000

Direct

$10.00 NNN

Boynton Beach

Quantum Park at Boynton

N/A

25,000

Direct

$14.00 NNN

Boynton Beach

Boca Village Corporate Center

The Geo Group

24,914

Direct

$29.00 NNN

Boca Raton

SIGNIFICANT SALES TRANSACTIONS PROPERTY

BUYER NAME

SIZE

SLAES PRICE $

SUBMARKET

The Park at Broken Sound

Pebb Enterprises

171,490

42,050,000

245

Boca Raton

Boca Raton Innovation Campus

Crocker Partners, LLC

301,221

26,969,626

Boca Raton

900 Broken Sound Pky NW

NAI/Merin Hunter Codman, Inc.

115,986

23,675,000

204

Boca Raton

Courthouse Commons

Granite Telecommunications, LLC.

85,668

22,750,000

266

West Palm Beach

Boca Raton Innovation Campus

Crocker Partners, LLC

177,994

21,226,087

119

Boca Raton

MAJOR DEVELOPMENT PIPELINE PROPERTY ADDRESS

COMPLETION

SIZE

DEVELOPER

SUBMARKET

3825 PGA Blvd. - South Tower

Q3 2018

111,972

DiVosta Investments

Palm Beach Gardens

3835 PGA Blvd. - North Tower

Q3 2018

111,972

DiVosta Investments

Palm Beach Gardens

4th & 5th Delray

Q1 2019

84,300

iPic Entertainment

Delray Beach

Atlantic Crossing

Q3 2019

65,308

Edwards Companies

Palm Beach

Mirasol Town Center

Q4 2018

46,000

John C. Bills

Palm Beach Gardens

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | APARTMENT | Q4 2017

STEVEN NOSTRAND President & COO ONE Commercial Real Estate

PALM BEACH

snostrand@onecommercialre.com

JULIAN SCHEEFF Director of Intelligence ONE Commercial Real Estate jscheeff@onecommercialre.com

ALEX MAKKI Marketing Coordinator ONE Commercial Real Estate amakki@onecommercialre.com

BROWARD MIAMI-DADE

ONE Commercial Real Estate 1000 Brickell Avenue, Suite 500 Miami, FL 33131 305.704.9787

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.