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


EXECUTIVE SUMMARY

MARKET TRENDS

STRONG DEMAND IN PALM BEACH CALLS FOR NEW OFFICE DEVELOPMENT

Q3 2017 OFFICE REPORT

The Palm Beach Office market ended the 3rd quarter under

Q3 2017

Q2 2017

FORECAST

VACANCY

10.61%

h

h

NET ABSORPTION

243,691

g

h

CONSTRUCTION

162,948

g

g

58,950

g

h

29.04

g

g

strong fundamentals. Palm Beach is benefiting from its diverse and dynamic economy adding 2.6% of new jobs to the marketplace. The area is a hub a center for Healthcare and Biotech, also fueled by the number of aging baby boomers looking to retire in South Florida.

COMPLETIONS

In the last quarter, rental rates increased by 1.71% to $29.04 per square-foot. At the same time, vacancies decreased by

GROSS LEASE RATE

35 basis-points, while absorption rates were increasing to 243,691 square-foot. Investment activity increased strongly

RELATIVE TO PRIOR PERIOD | SOURCE: COSTAR PROPERTY®

by 108%, as the market offers to be promising due to high demand and supply constraints. Construction in the office segment is currently 162,948 square-foot, about 25,448

OUTLOOK

square-foot are scheduled for the end of next quarter.

Palm Beach County’s economy is diverse and growing at a strong rate. The city has established itself as a hub for Biotech and Healthcare and is benefiting from an influx of retired baby boomers. The demand for new medical/office space is high and can currently not be satisfied. As need for new office development arises, vacancies are expected to drop further while rental rates increase. It is also likely that tenants are moving to Broward or Miami-Dade if their need for office space can’t be satisfied in Palm Beach County.

JOB GROWTH BY INDUSTRY PALM BEACH

US

SOURCE: US DEPARTMENT OF LABOR STATISTICS

INFORMATION FINANCIAL ACTIVITIES TRADE, TRANSPORTATION AND UTILITIES -6.0%

-5.0%

-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%

11.0%

12.0%

TOTAL NONFARM MANUFACTURING MINING AND LODGING OTHER GOVERNMENT CONSTRUCTION LEISURE AND HOSPITALITY EDUCATION AND HEALTH SERVICES PROFESSIONAL AND BUSINESS SERVICES

ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q3 2017

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MARKET ACTIVITY

COMPLETIONS, ABSORPTION AND VACANCY TRENDS COMPLETIONS

About 243,691 square-foot of office space were absorbed in the past quarter and 58,950 square-foot of new supply added to the market. Palm Beach’s vacancy decreased by 35 basispoints to 10.61% compared to the previous period with gross

ABSORBTION

VACANCY

SOURCE: COSTAR PROPERTY®

450,000

12.50%

400,000

asking rents increasing by 1.71 % to $29.04 per square-foot.

12.00% 350,000

Palm Beach’s economy is growing at a high pace. Over the last

300,000

11.50%

12 months 2.6% new jobs were added to the labor force, which yields in a low unemployment rate of 3.9%. Palm Beach County has one of the most diverse economies in the United States.

250,000 11.00% 200,000

The county combines its core competencies agriculture and leisure with a strong science and technology-based component. These areas include aerospace, life sciences and health sciences. Palm Beach is also benefiting from many baby boomers reaching retirement age and who want to relocate to the South. Palm Beach is an attractive location offering a dense medical network, big city amenities but also

150,000

10.50%

100,000 10.00% 50,000 0

9.50%

Q2 2016

the comforts of a suburban life-style.

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Growing rental rates and declining vacancies reflect the need for office space in Palm Beach. Nevertheless, construction for new office space is yet due to pick

ECONOMIC OVERVIEW

up. One of the reasons is that there are higher margins with multifamily development. Currently there are about 162,948 square-foot of office stock under construction

Q3 2017

GROWTH

with 25,448 square-foot expected for next quarter. The

UNEMPLOYMENT RATE

3.9%

- 11.4%

largest development project is 4th & 5th Delray, an 84,300

POPULATION GROWTH

1,493,750

+ 2.77%

4th Ave. The project is expected to be completed in the

MEDIAN HOUSEHOLD INCOME

61,683

+ 4.61%

beginning of 2018 and containing approximately 42,900

LABOR FORCE

617,500

+ 2.61%

square-foot mixed use development located on 25 SE

gross square feet of class A office space set above a 41,400 square foot iPic Entertainment venue, along with CHANGE AS PER YEAR-TO-DATE | SOURCE: US DEPARTMENT OF LABOR STATISTICS

a five-level, 279-space parking garage containing 7,300 square feet of ground-level retail.

AVERAGE ASKING RENTS TRENDS CLASS A

CLASS B

OVERALL

SOURCE: COSTAR PROPERTY®

40 35 30 25 20 15 10 5 0

Q2 2016

Q3 2016

ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q3 2017

Q4 2016

Q1 2017

Q2 2017

Q3 2017

3


LEASING ACTIVITY

PRICE TRENDS CAP RATE

Palm Beach has attracted a number of medical/biotech businesses since last year, including cloud-based medical software company Integra Connect and Jupiter Medical Center at the Bank of America Centre at 625 North Flagler Drive. In the last quarter only a few major signings could be seen, which can be attributed to the lack of available space in the area.

$/SF

SOURCE: REAL CAPITAL ANALYTICS

290

7.80%

250

7.30%

230 6.80% 210 6.30%

TRANSACTION HIGHLIGHTS DURING THE LAST QUARTER INCLUDED:

190 5.80%

170 130

5.30% Q4 2014

Steinger, Iscoe & Greene, P.A., a law firm specializing in personal injury signed a lease over 23,360 square-foot in

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

West Palm Beach

TRANSACTION VOLUME Triology Home Healthcare renewed it 17,475 squarefoot lease at the Mellon United National Bank building.

OFFICE

SOURCE: REAL CAPITAL ANALYTICS

$.45BN $.40BN

SALES ACTIVITY

$.35BN $.30BN

Investment volumes increase by 108% in the last quarter

$.25BN

to $318 million, while cap rates declined to 5.56% and

$.20BN

prices per square-foot to $199. As demand for office stock

$.15BN

remains high and the market experiences significant supply

$.10BN

constraints, investor appetite for office product is high in

$.05BN

Palm Beach and offers to be promising.

$.00BN Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q2 2017

Q3 2017

TRANSACTION HIGHLIGHTS DURING THE LAST QUARTER INCLUDED:

Office Depot bought its Boca Raton HQ for $132.05 million. The building totals 1,071,048 square-foot, with about 630,000 square-foot of office space. The building last traded for $171 million in 2011, and was constructed on the 28.9acre campus in 2008. The acquisition came a surprise, as it was assumed Office depot would move its headquarters to Massachusetts. Now it seems that Office Depot has invested in a long-term future in Boca Raton.

The Golden Bear Plaza office complex in Palm Beach Gardens sold for $62.3 million. Equus Capital Partners, sold the

INVESTMENT SALES | LANDLORD REPRESENTATION | TENANT REPRESENTATION

245,673-square-foot “Class A” office complex to Shidler Group.

ASSET MANAGEMENT | PROJECT MANAGEMENT

The price equated to $254 per square foot. The three-building property on 10.9 acres last traded for $32.25 million in 2003. The building was developed between 1985 and 1990 by Jack Nicklaus and is a locally recognized landmark, with Panoraic views of the Intracoastal Waterway and the Atlantic Ocean.

ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q3 2017

4


OFFICE STATISTICS SUBMARKET

CLASS

TOTAL INVENTORY (SF)

VACANCY (%)

YTD NET ABSORBTION

YTD DELIVERIES

UNDER CONSTRUCTION

QUOTED RATES

Boca Raton East

Total

5,812,504

9.52%

(30,454)

-

-

30.29

A

1,762,186

15.40%

(20,110)

-

-

32.94

B

2,629,113

8.15%

(5,317)

-

-

28.21

Boca Raton North

Total

7,115,314

14.53%

88,284

-

-

25.67

A

3,645,971

14.90%

64,004

-

-

28.38

B

3,116,466

15.33%

37,067

-

-

22.87 36.06

Boca Raton West

Total

4,519,410

13.92%

(1,893)

-

-

A

2,396,296

17.87%

(8,870)

-

-

39.87

B

1,952,184

9.37%

6,179

-

-

29.10

Boynton/Lantana

Total

2,877,017

9.54%

137,689

-

7,099

25.15

A

513,649

6.17%

72,216

-

-

25.97

B

1,755,369

12.60%

71,471

-

7,099

24.95

Delray Beach

Total

3,972,694

20.05%

(3,591)

33,400

84,300

26.80

A

30,845

0.00%

-

-

-

-

B

2,562,571

28.47%

26,366

33,400

84,300

26.30 27.06

Jupiter

Total

3,566,150

6.14%

10,797

-

-

A

623,384

4.98%

(14)

-

-

35.16

B

2,309,661

7.15%

6,445

-

-

26.41

North Palm Beach

Total

8,487,684

6.34%

33,412

-

-

28.01

A

1,525,782

9.98%

7,254

-

-

33.11

B

5,282,819

5.81%

45,031

-

-

27.51

Total

1,513,316

10.77%

28,663

63,050

58,999 28.07

Outlying Palm Beach City 28.16

A

25,550

100.00%

-

25,550

-

B

1,128,165

9.88%

22,811

37,500

58,999

29.45

Palm Beach

Total

1,093,762

16.70%

(58,584)

-

-

62.19

A

24,688

21.58%

(5,327)

-

-

58.57

B

735,349

21.14%

(31,343)

-

-

62.90

Total

1,011,418

5.44%

11,335

-

3,750

Palm Springs/Lake Worth 27.12

A

50,577

0.00%

-

-

-

-

B

567,055

6.07%

9,477

-

3,750

29.42

Total

1,771,462

4.29%

26,388

17,300

8,800 34.18

Royal Palm Beach/Wellington 29.53

A

124,705

7.44%

(3,910)

-

-

B

1,212,947

4.07%

30,697

17,300

8,800

29.88

West Palm Beach

Total

7,973,695

9.74%

72,809

-

-

23.67

A

1,199,331

13.16%

25,915

-

-

28.04

B

3,838,191

11.42%

35,792

-

-

23.28

West Palm Beach CBD Total

5,444,539

10.15%

57,366

-

-

34.55

A

2,539,505

11.22%

76,360

-

-

39.76

B

30.07

1,985,039

9.43%

(16,663)

-

-

Total

55,158,965

10.61%

372,221

113,750

162,948

29.04

Class A

14,462,469

13.42%

207,518

25,550

-

33.46

Class B

29,074,929

11.26%

238,013

88,200

162,948

27.56

SOURCE: COSTAR PROPERTY®

ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q3 2017

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SIGNIFICANT LEASE TRANSACTIONS PROPERTY ADDRESS

TENANT NAME

SIZE

LEASE TYPE

SUBMARKET

1645 Palm Beach Lakes Blvd

Steinger, Iscoe & Greene, P.A.

23,360

New

West Palm Beach

1645 Palm Beach Lakes Blvd

Trilogy Home Healthcare

17,475

Renewal

West Palm Beach

SIGNIFICANT SALES TRANSACTIONS PROPERTY ADDRESS

BUYER NAME

SIZE

SALES PRICE $

$/SF

SUBMARKET

6600 N Military Trail

Office Depot

630,000

132,050,000

210

Boca Raton

11760 US Hwy 1 N

Shidler Group

245,673

62,300,000

254

Palm Beach Gardens

250 South Australian Av

Velocis and CREC

218,461

42,300,000

194

West Palm Beach

301 Yamato Rd

Morning Calm Management

206,946

38,940,000

188

Boca Raton

701 Boutwell Rd

Silverman Group

251,292

30,740,000

122

Lake Worth

MAJOR DEVELOPMENT PIPELINE PROPERTY ADDRESS

COMPLETION

25 SE 4 Av

Q1 2018

3377 State Rd

Q1 2018

33 W Avenue

Q4 2017

ONE COMMERCIAL REAL ESTATE | PALM BEACH | OFFICE | Q3 2017

SIZE

DEVELOPER

SUBMARKET

84,300

N/A

Delray Beach

30,000

MAS Development Corp

Palm Beach

14,599

N/A

Palm Beach

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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 - Palm Beach  
Market View Q3 2017 | Offices - Palm Beach  
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