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MARKET VIEW | OFFICES MIAMI-DADE | BROWARD | PALM BEACH


EXECUTIVE SUMMARY

MARKET TRENDS

MIAMI OFFICE SECTOR EXPERIENCES SOFTENING DEMAND, WHILE CONSTRUCTION BOOM REMAINS UNBROKEN

Q3 2017 OFFICE REPORT

VACANCY

The Miami Office market ended the 3rd quarter under mixed

NET ABSORPTION

circumstances. The office market is currently undergoing a

Q3 2017

Q2 2017

FORECAST

8.71%

g

g

164,603

h

g

1,801,743

h

h

436,786

g

h

32.82

h

g

major transformation, as firms like WeWork disrupt the traditional CONSTRUCTION

work environment. As for Miami, the sector is struggling with softening demand, while supply remains unbroken.

COMPLETIONS

In the last quarter, rental rates declined by 3.5% to 32.82 per square-foot. At the same time, vacancies decreased

GROSS LEASE RATE

by 22 basis-points, while absorption rates were declining to 164,603 square-foot. Investment activity decreased by

RELATIVE TO PRIOR PERIOD | SOURCE: COSTAR PROPERTY®

63%, as investors are cautious due to the high supply in new space and low yields. Construction in the office segment

OUTLOOK

is currently 1.8 million square-foot, major deliveries in the next quarter include Two and Three Miami Central, which are

The office sector in Miami-Dade should be watched cautiously. There is still

adding 318,000 square-foot to the market place.

demand for Class A office space in the urban core; however, it is questionable if tenants are going to pay rates higher than $50 per square-foot, with huge supply of class A space in the pipeline. Vacancies are likely to increase with about 762,384 square-foot anticipated for next quarter. Simultaneously demand is softening as jobs in professional and financial services are declining. Rents are expected to increase slightly with the continuous lease-up of class A space in the near future.

JOB GROWTH BY INDUSTRY MIAMI

US

SOURCE: US DEPARTMENT OF LABOR STATISTICS

INFORMATION MANUFACTURING FINANCIAL ACTIVITIES CONSTRUCTION PROFESSIONAL AND BUSINESS SERVICES -4.0%

-3.0%

-2.0%

-1.0%

0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

TOTAL NONFARM MINING AND LODGING OTHER GOVERNMENT TRADE, TRANSPORTATION AND UTILITIES LEISURE AND HOSPITALITY EDUCATION AND HEALTH SERVICES

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q3 2017

2


MARKET ACTIVITY

COMPLETIONS, ABSORPTION AND VACANCY TRENDS COMPLETIONS

About 164,603 square-foot of office space was absorbed in the past quarter and 436,786 square-foot of new supply added to the market. Miami-Dade’s vacancy increased by 22 basis-points to the previous period with gross asking rents decreasing by 3.5% to $32.82 per square-foot. Downtown is the area with the highest vacancy in the Miami area with about 16.66%, which was up slightly from last quarter. Downtown is undergoing large shifts in its office landscape. Two and Three Miami Central are anticipated for the end of the year. The project by Florida East Coast Industries marks a new era of transit-oriented development in Miami and is going to promote downtown as prime office location. Miami Worldcenter, another major project is already in the pipeline. The project, which spans over 30 acres, will create its own neighborhood, adding another 600,000 square-foot of Class A office space by 2020. Miami’s economy is growing, but lagging behind the dynamic

ABSORBTION

VACANCY

SOURCE: COSTAR PROPERTY®

500K

9.80%

450K

9.60%

400K

9.40%

350K

9.20%

300K

9.00%

250K

8.80%

200K

8.60%

150K

8.40%

100K

8.20%

50K

8.00%

0

7.80%

Q2 2016

of Broward and Palm Beach. Over the past year, jobs grew by

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

1.7%. Largely driven by a strengthening hospitality sector, which took a slump last year due to Zika and other disruptive factors. Important industries for the office sector such as professional and business services, financial services and technology all had declining job numbers over the past year. That can be taken as indicator for a softening demand in office space.

ECONOMIC OVERVIEW

Currently there are about 1.8 million square-foot under construction with major projects such as Two and Three

Q3 2017

GROWTH

UNEMPLOYMENT RATE

5.1%

+ 4.1%

activity include Coral Gables, Downtown and the Airport Area.

POPULATION GROWTH

2,760,930

+ 1.42%

Developers have started to become cautious due to high land

MEDIAN HOUSEHOLD INCOME

46,962

+ 4.14%

LABOR FORCE

1,173,000

+ 1.73%

Miami Central in Downtown and 800 Waterford in Doral, which are proposed for the end of 2017. Areas with elevated

values and construction costs and 1.8 million square-foot of supply expected to come on market in the next 2 years. Many of the projects announced are therefore are outside the urban core, in areas like Wynwood, Aventura, Coconut Grove and Doral

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

focusing on a live-work-play environment. With the economy nearing its end of its expansion cycle new developments are expected to decrease in the near term.

AVERAGE ASKING RENTS TRENDS CLASS A

CLASS B

OVERALL

SOURCE: COSTAR PROPERTY®

45 40 35 30 25 20 15 10 5 0

Q2 2016

Q3 2016

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q3 2017

Q4 2016

Q1 2017

Q2 2017

Q3 2017

3


LEASING ACTIVITY

PRICE TRENDS CAP RATE

The leasing market in Miami is traditionally driven by a growing number of new-to-market and expanding companies many from Latin America, which are looking to establish a regional HQ or a footprint in North America. There is also strong demand for quality office assets outside Miami’s

$/SF

SOURCE: REAL CAPITAL ANALYTICS

390

6.30%

370

6.10%

350

5.90%

330

urban core as market fundamentals drive historically high

310

average lease rate and below prerecession vacancy levels.

290

Prime lease rates can be achieved in Brickell with class A

270

rents averaging over $50 per square-foot.

250

5.70% 5.50% 5.30% 5.10%

230

TRANSACTION HIGHLIGHTS DURING THE LAST QUARTER INCLUDED:

4.90%

210 190

4.70% Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q4 2016

Q1 2017

Q3 2017

Travel industry firm Amadeus renewed and expanded its lease at One Park Square in Doral to take up 115,000 squarefoot. The Spain-based company, which has been in the building since 2012, added 10,000 square-foot to its U.S. headquarters. It now has more than 500 employees in the building.

TRANSACTION VOLUME CBD

SUBURBAN

SOURCE: REAL CAPITAL ANALYTICS

$1.00BN

SALES ACTIVITY

$.80BN $.60BN

After a strong second quarter, total investment volume

$.40BN

decreased by 63%. Cap rates tightened to 5.05%, while per

$.20BN

square-foot prices increased to $291. Investor demand is

$.00BN

still high for office space, but they have become cautious, as the economy is late in the business cycle and office the

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q2 2017

Q3 2017

first industry, which is being hit in a downturn.

TRANSACTION HIGHLIGHTS DURING THE LAST QUARTER INCLUDED:

TA Realty bought one Park Square in Doral for $96.1 million. The building is 281,786 square-foot large and includes 49,942 square-foot of retail and a parking garage. The price equated to $341 per square-foot. The 11-story One Park Square was developed in 2009 and sold the following year for $27.5 million — amid the financial crisis when it was tough to attract tenants. The building is now 91% leased, with the largest tenant being travel technology firm Amadeus North America.

AvMed executed a sale and lease-back of its Dadeland offices with Keystone Property Group. The health

INVESTMENT SALES | LANDLORD REPRESENTATION | TENANT REPRESENTATION ASSET MANAGEMENT | PROJECT MANAGEMENT

insurance company sold the two office buildings at Dadeland Towers South, totaling 228,136 square-foot at 9400 and 9500 South Dadeland Boulevard, plus a 246,319-square-foot parking garage for $36 million to Keystone Property Group, of Pennsylvania. AvMed also agreed to lease 102,000 squarefoot in the buildings over the long term. The price equated to $158 per square-foot of office space. Dadeland Towers South was developed in 1979.

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q3 2017

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OFFICE STATISTICS SUBMARKET

CLASS

TOTAL INVENTORY (SF)

VACANCY (%)

YTD NET ABSORBTION

YTD DELIVERIES

UNDER CONSTRUCTION

QUOTED RATES

Aventura

Total

1,901,976

7.00%

(20,437)

-

283,570

45.55

A

943,517

8.47%

3,162

-

121,038

47.80

B

822,655

6.06%

(33,183)

-

162,532

43.49

Biscayne Corridor

Total

2,861,228

13.47%

(41,837)

-

40,000

36.16

A

699,000

21.85%

39,780

-

40,000

35.00

B

1,115,785

11.77%

(45,661)

-

-

39.56 43.62

Brickell

Total

9,599,810

10.24%

178,643

92,000

100,000

A

5,039,867

11.11%

180,740

92,000

100,000

50.01

B

4,229,278

9.79%

747

-

-

35.40

Coconut Grove

Total

2,263,551

9.21%

26,350

106,000

95,000

39.09

A

653,332

21.05%

14,483

106,000

95,000

41.61

B

1,170,633

4.67%

8,467

-

-

33.80

Coral Gables

Total

10,968,393

7.44%

69,749

-

508,393

38.26

A

4,877,318

8.20%

145,207

-

411,966

41.35

B

4,069,578

8.22%

(57,168)

-

96,427

35.04 27.60

Coral Way

Total

2,374,939

2.86%

(8,774)

13,795

41,117

A

84,248

0.00%

-

-

41,117

-

B

1,123,515

3.03%

16,423

13,795

-

28.85

Downtown Miami

Total

11,681,649

16.66%

(44,467)

-

318,000

37.87

A

5,152,388

18.82%

(84,254)

-

318,000

44.06

B

5,293,938

15.80%

43,079

-

-

30.54

Kendall

Total

464,913

6.63%

(10,968)

-

7,185

29.89 -

A

-

0.00%

-

-

-

B

205,824

14.44%

(9,880)

-

7,185

29.89

Medley/Hialeah

Total

11,632,988

6.41%

213,295

53,614

35,340

30.08

A

1,827,469

14.67%

60,440

-

-

39.55

B

6,259,554

6.41%

79,793

53,614

35,340

28.01

Miami

Total

4,322,735

4.56%

84,880

-

8,000

25.51

A

793,962

12.06%

14,907

-

-

26.72

B

1,861,404

3.01%

60,478

-

8,000

25.06

Miami Airport

Total

6,823,393

5.43%

102,017

84,271

38,300

32.08 34.39

A

1,177,103

7.79%

74,304

61,906

-

B

2,418,136

6.41%

27,259

22,365

38,300

38.41

Miami Beach

Total

19,184,239

8.31%

154,247

246,085

206,407

28.79

A

5,769,613

10.72%

85,903

246,085

206,407

33.39

B

10,389,281

8.43%

81,683

-

-

26.00

Miami Lakes

Total

4,516,348

5.98%

(55,293)

-

-

41.84

A

926,011

8.93%

(29,538)

-

-

47.91 40.45

B

2,459,090

6.19%

(18,704)

-

-

Miami Dade Central

Total

3,558,675

15.66%

92,235

66,780

-

21.26

A

417,048

19.55%

22,479

-

-

24.19

B

2,681,208

16.09%

82,036

66,780

-

20.91

Northeast Dade

Total

6,366,504

7.45%

190,788

20,000

96,000

23.09

A

187,342

11.93%

4,990

-

96,000

24.07

B

2,460,905

12.19%

86,944

20,000

-

23.39

Outlying Miami-Dade Total

174,832

0.00%

-

-

-

-

-

0.00%

-

-

-

-

A

B

164,443

0.00%

-

-

-

South Dade

Total

2,343,219

7.14%

60,382

15,000

18,480

21.69

A

-

0.00%

-

-

-

-

B

1,399,898

10.07%

270

15,000

18,480

24.19

West Miami

Total

1,843,724

0.65%

5,844

-

5,951

24.04

A

46,118

0.00%

-

-

-

23.00

B

598,466

0.95%

1,508

-

5,951

23.43 32.82

Total

102,883,116

8.71%

996,654

697,545

1,801,743

Class A

28,594,336

12.45%

532,603

505,991

1,429,528

40.71

Class B

48,723,591

9.04%

324,091

191,554

372,215

29.92

SOURCE: COSTAR PROPERTY® ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q3 2017

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SIGNIFICANT LEASE TRANSACTIONS PROPERTY ADDRESS

TENANT NAME

SIZE

3470 NW 82 Avenue

Amadeus

150,000

601 SW 8 Avenue

The Lighthouse Learning Center for Children 72,000

LEASE TYPE

SUBMARKET

Renewal

Miami Airport

New

Miami

100 S Biscayne Boulevard

US Small Business Administration

24,962

Renewal

Downtown Miami

800 Waterford Way

Atkins N.A.

24,608

New

Miami Airport

1221 Brickell Avenue

Banco de Brasil Americas

16,500

Renewal

Brickell

SIGNIFICANT SALES TRANSACTIONS PROPERTY ADDRESS

BUYER NAME

SIZE

SALES PRICE $

$/SF

SUBMARKET

3470 NW 82 Avenue

TA Realty

281,786

96,100,000

341

South Dade

9400-9500 S Dadeland Boulevard

Keystone Property Group

228,136

36,000,000

158

Miami Airport

7500 NW 72 Avenue

Gramercy Property Trust

119,008

18,000,000

151

Miami Airport

5835 Waterford

Doug Davis

57,565

10,550,000

183

Miami Airport

6801 NW 77 Avenue

Cofe Properties

95,821

7,800,000

81

Miami Airport

MAJOR DEVELOPMENT PIPELINE PROPERTY ADDRESS

COMPLETION

SIZE

DEVELOPER

SUBMARKET

604 NW 1 Street

Q4 2017

194,352

All Aboard Florida

Downtown Miami

5707 Blue Lagoon Drive

Q4 2016

150,000

The Hogan Group

Miami Airport

160 NW 7 Street

Q4 2017

123,648

All Aboard Florida

Downtown Miami

2202 Brickell Avenue

Q1 2018

100,000

Florida East Coast Realty

Brickell

2801 NE 213 Street

Q1 2018

100,000

N/A

Aventura

ONE COMMERCIAL REAL ESTATE | MIAMI-DADE | OFFICE | Q3 2017

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STEVEN NOSTRAND President & COO ONE Commercial Real Estate snostrand@onecommercialre.com

BROWARD

JULIAN SCHEEFF Director of Intelligence ONE Commercial Real Estate jscheeff@onecommercialre.com Miami | North End Aventura Golden Beach Bal Harbour Surfside Sunny Isles The Islands Bay Harbor Islands Indian Creek Normandy Isles La Gorce Sunset Islands Venetian Islands Fisher Island Key Biscayne Miami Beach South Beach Mid Beach North Beach Downtown Miami Midtown Edgewater Downtown Miami

MIAMI-DADE COUNTY

Palm/Hibiscus/Star Islands

Brickell Western Miami Doral Miami | South End Coconut Grove Coral Gables Pinecrest Palmetto Bay CocoPlum Gables Estates Snapper Creek Lakes Ponce-Davis & High Pines Old Cutler Bay Deering Bay

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.

Market View Q3 2017 | Offices - Dade  
Market View Q3 2017 | Offices - Dade  
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