23Q4 | Office - South Florida Market Report

MARKET REPORT

SOUTH FLORIDA | OFFICE

Q4 23

1

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

A BOUTIQUE BROKERAGE WITH INSTITUTIONAL QUALITY SUPPORT ONE Commercial Real Estate was born from a commitment to be a change agent for clients and industry professionals. Founded by Daniel de la Vega, the President of ONE Sotheby’s International Realty, we offer superior results to owners, occupiers, and developers of commercial real estate by obtaining and sharing intelligence as well as applying our knowledge, experience, competence and technical skills.

Our team members have experienced several cycles that have taught valuable lessons. We have decades of on-the-ground experience and market knowledge in South Florida advising clients in all aspects of commercial real estate. We provide the insight necessary to lead informed and efficient decision making.

The commercial real estate landscape has changed. Florida is impacted by global economic and political events more than most. Capital is forming new markets, redefining old ones, and continues to shape the fabric of our ever-growing landscape. Understanding these changes allows us to continue serving our clients and communities. By embracing the data and analytics we can identify movements, address obstacles, forecast challenges, and secure a vision for the future.

This edition of the ONE Commercial Market Report examines the office markets in Miami-Dade, Broward, and Palm Beach counties.

Daniel de la Vega Chief Executive Officer ONE Commercial Real Estate

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

2

Miami-Dade County Q4 2023 | OFFICE REPORT MIAMI’S OFFICE MARKET CONTINUES TO ATTRACT BUSINESSES, DIVERSE ECONOMY, POSITIVE DEMAND DESPITE NATIONAL TRENDS

EXECUTIVE SUMMARY With a pro-business atmosphere, an increasingly skilled workforce and strong employment growth, Miami is one of the few office markets in the country with healthy post-pandemic demand.

The region continues to attract new business due to more affordable occupancy costs, with average office asking rents that are 60% below New York and San Francisco, a low corporate and no personal income tax. These factors remain

1 YEAR AGO

CURRENT

INVENTORY SF

116,985,501

117,154,124

UNDER CONSTR SF

3,695,984

4,915,941

12 MO NET ABSORP SF

1,295,668

585,550

VACANCY RATE

8.67%

8.30%

MARKET RENT/SF

$47.00

$49.35

MARKET SALE PRICE/SF

$362

$352

MARKET CAP RATE

6.56%

6.88%

CHANGE

SOURCE: COSTAR

attractive to those moving from higher-cost states

particular. Additionally, Miami’s proximity to Latin America

such as California and New York.

and the Caribbean makes it a hub for international trade and

Despite a national environment of tenants

finance, further fueling office demand.

rightsizing footprints and macroeconomic

On the supply side, there are 4.9 million SF underway, the

headwinds, net absorption in Miami over the

most in a decade, with 70% concentrated within a 3.5 mile

past 12 months remained positive at 560,000 SF,

radius of Downtown Miami. Deliveries are expected to remain

though this dropped below the average between

elevated over the next three years, averaging 1.2 million SF

2015 and 2019 of 890,000 SF. A slowing economic

annually, above the 10-year annual average of 480,000 SF.

environment, particularly for finance and tech, is

Despite this rise in supply, 60% of incoming inventory is

driving a near-term slowdown in absorption and

concentrated in eight towers, which are 70% pre-leased,

rent gains from peaks of 10.9% seen in 2022. Still,

therefore new space availability remains limited.

office asking rents in Miami are rising at a 5.0% annual rate during the first quarter of 2024, above

Going forward, rent growth will continue to moderate as

national rent gains of 0.8%.

weaker demand, driven by softer office using job gains,

The metro’s impressive demand formation has

attractiveness, coupled with a limited availability of high

benefitted downtown. New developments in the

quality space, should drive an outperformance in rent gains

corridor offer tenants the amenitized, high-quality

compared to the national average. This relative strength in

space that is sought-after in the post-pandemic

fundamentals will help buoy office market values, with Miami

working world. Diversification of the metro’s

representing just a handful of markets with forecast office

economic base has also been an important

value gains of 8% through 2024 relative to 2019 levels, above

demand driver, with growth in the professional

the 11% average decline for the 54 largest U.S. markets.

and business services and healthcare sectors, in

3

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

meets rising inventory. Despite this, the market’s increased

Although office values should outperform, higher interest

MARKET REPORT

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

4

SALES VOLUME & MARKET SALE PRICE PER SF $380

rates have expanded average annual transaction cap

$1.4B

FORECAST

$360

$1.2B

$340

$1B

$320

$800M

$300

$600M

$280

$400M

$260

$200M

rates from 2022 lows in the 5% range to the mid-6% pricing correction relative to peak pricing levels in 2022. Transaction activity has also cooled, with volume SALES VOLUME

MARKET SALE PRICE/SF

range through 2023. This is resulting in a near-term

totaling $967 million over the past 12 months, down from $2.5 billion transacted through the second quarter of 2022. Despite this slowdown, institutional players

$0

$240

21

22

23

SALES VOLUME

24

25

26

MARKET ACTIVITY Trailing 12-month volume has slowed to $967 million

PRICE/SF UNITED STATES

PRICE/SF

remain active, making up 26% of annual volume.

through the first quarter of 2024, below the five-year average of $1.4 billion, as dry powder remains on the

MARKET CAP RATE

sidelines, awaiting lower prices. Despite this slowdown, Miami remains attractive on a relative basis, as healthy

9.5% FORECAST

demand and limited supply drive a low vacancy rate,

9.0%

suggesting that the market is insulated from future

8.5%

economic uncertainty relative to its high-growth 8.0%

peers. This outperformance has continued to attract institutional investors, making up 26% of buyer activity

7.5%

in 2023, in line with average levels of activity over the

7.0%

prior five years.

6.5%

6.0%

The second half of 2023 saw rising volume, driven by

5.5%

two major transactions. The largest of these involves the October sale of the 4 Star 801 Brickell Ave. for $250

5.0%

21

22

3 STAR MIAMI

23

24

MIAMI

4-5 STAR MIAMI

25

26

UNITED STATES

million, or $602/SF. Monarch Alternative Capital and Tourmaline Capital Partners acquired the property from Nuveen at a 6.75% cap rate. The buyer indicated that

MARKET RENT PER SF

they looked at the asset as a well-positioned, top quality building in a growing market despite a negative office

$70 FORECAST

outlook. The property was last purchased by Nuveen in

$65

2002 at a 6.45% cap rate. The increase in the cap rate for

$60

this property relative to its last trade is more indicative of valuation pressure driven by a higher fed funds rate

$55

rather than a softening in market fundamentals. In fact,

$50

the property now has asking rents between $100/SF

$45

and $120/SF, above prior asking rents of between $70/ SF and $90/SF from 2021 to 2022, indicating tenant

$40

rollover upside.

$35

$30

21

22

3 STAR MIAMI

5

23

4-5 STAR MIAMI

24

MIAMI

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

25

UNITED STATES

26

Despite a rebound in volume through the second half

OFFICE | MIAMI-DADE

TOP BUYERS LAST 12 MONTHS at a faster clip relative to Miami as office fundamentals

STOCKBRIDGE CAPITAL GROUP, LLC

deteriorate faster in other markets. In fact, Miami is one of

GID INVESTMENT ADVISORS LLC

seven major U.S. markets with expected office value gains

PANTZER PROPERTIES

through 2024 versus 2019 values. This is driven by an

BAYSHORE GLOBAL MANAGEMENT LLC

expectation of continued rental growth as the market has some of the healthiest demand gains in the country.

BERKSHIRE

IMC EQUITY GROUP

OUTLOOK

PENSAM

RAMON MIJARES

Population growth has returned to Miami-Dade County

XAVIER PEREZ

after two years of losses from 2020 through 2021. That said, the county has 37,000 fewer residents than in 2019.

RENTAL ASSET MANAGEMENT LLC $20M

$40M

$60M

$80M

$100M

$120M

$140M

$160M

$180M

SALES VOLUME - PAST 1 YEAR

A closure in international travel during the pandemic resulted in a drag to population growth in the area,

of 2023, high volume deals are likely to continue to slow.

Additionally, higher interest rates have resulted in higher cap rates, with average transaction cap rates expanding to the mid-6% to 7% range, up from the mid-5% range in 2022. Going forward, national cap rates will expand

which has historically been driven by international net migration. Additionally, a rise in the cost of living, with inflation in South Florida doubling the national average, has driven net domestic out-migration as residents leave in search of a lower cost of living in central, northern Florida as well as in Georgia and Texas.

SUBMARKET SALES TRANSACTIONS PAST 12 MONTHS SUBMARKET

SALES VOLUME

TRANSACTIONS

TRANSACTED SF

AVERAGE SF

MARKET CAP RATE

MARKET SALE PRICE/SF

BRICKELL

$256,515,000

16

435,549

27,222

6.3%

$517

CORAL GABLES

$183,020,884

24

545,653

22,736

7.0%

$377

MIAMI AIRPORT

$142,838,405

32

736,592

23,019

7.1%

$276

DOWNTOWN MIAMI

$79,633,000

8

259,198

32,400

6.65%

$359

KENDALL

$69,213,871

39

259,742

6,660

7.0%

$312

NORTHEAST DADE

$66,498,750

25

249,184

9,967

7.0%

$293

MIAMI

$54,082,529

23

156,550

6,807

7.2%

$301

MIAMI LAKES

$41,893,000

13

179,657

13,820

7.3%

$247

WYNWOOD-DESIGN DISTRICT

$35,126,120

5

35,634

7,127

6.5%

$486

MIAMI BEACH

$17,725,000

5

28,084

5,617

6.5%

$441

CORAL WAY

$10,684,800

7

19,988

2,855

6.6%

$373

COCONUT GROVE

$8,752,500

4

8,503

2,126

6.8%

$431

BISCAYNE CORRIDOR

$8,675,000

3

17,486

5,829

6.9%

$319

WEST MIAMI

$7,748,000

10

20,729

2,073

7.1%

$325

HIALEAH

$6,750,000

4

8,968

2,242

7.1%

$276

AVENTURA

$6,025,900

9

47,458

5,273

6.8%

$436

SOUTH DADE

$4,655,000

3

16,342

5,447

6.9%

$268

OUTLYING MIAMI-DADE CNTY

$780,000

10

38,715

3,872

7.1%

$316

MIAMI GARDENS/OPA LOCKA

$710,000

1

4,502

4,502

7.0%

$266

SOURCE: COSTAR

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

6

RECENT SIGNIFICANT SALES 801 BRICKELL AVENUE | 801 BRICKELL Brickell Submarket | Miami, FL 33131 SALE DATE

Oct 2023

SALE PRICE

$250M ($602/SF)

CAP RATE LEASED

BUYER

Monarch Alternative Capital (USA) + 1

6.8% (Actual)

SELLER

Nuveen (USA)

92%

BROKER

Colliers

SALE TYPE

Investment

HOLD PERIOD 20+ Years RBA

415,150 SF

YEAR BUILT

1985

355 ALHAMBRA CIRCLE Coral Gables Submarket | Coral Gables, FL 33134 SALE DATE

Sep 2023

SALE PRICE

$90M ($404/SF)

LEASED

84%

HOLD PERIOD 93 Months RBA YEAR BUILT

BUYER

Princeton International Properties (USA)

SELLER

PGIM Real Estate (USA)

BROKER

Cushman & Wakefield

222,884 SF

SALE TYPE

Investment

2001 (Reno 2017)

SALE COND

1031 Exchange

150 W FLAGLER STREET | MUSEUM TOWER Downtown Miami Submarket | Miami, FL 33130 SALE DATE

May 2023

BUYER

SALE PRICE

$73.8M ($302/SF)

BROKER

Colliers

CAP RATE

7.6% (Actual)

SELLER

Bridge Investment Group (USA)

LEASED

92%

BROKER

CBRE

SALE TYPE

Investment

HOLD PERIOD 43 Months RBA

243,825 SF

YEAR BUILT

1983

Moishe Mana (USA)

5505 BLUE LAGOON DR | 5505 WATERFORD Miami Airport Submarket | Miami, FL 33126 SALE DATE

Dec 2023

BUYER

Lennar (USA)

SALE PRICE

$68M ($319/SF)

SELLER

LEASED

100%

Franklin Street Properties Corporation (USA)

HOLD PERIOD 20+ Years

BROKER

CBRE Owner User Purchase By Tenant

RBA

213,182 SF

SALE TYPE

YEAR BUILT

2002 (Reno 2021)

SALE COND.

255 ALHAMBRA CIRCLE | 255 ALHAMBRA Coral Gables Submarket | Coral Gables, FL 33134 SALE DATE

Aug 2023

BUYER

LNDMRK Development (USA) + 2

SALE PRICE

$54.4M ($246/SF)

SELLER

DWS Group (DEU)

LEASED

85%

BROKER

JLL

SALE TYPE

Investment

HOLD PERIOD 205 Months RBA

221,335 SF

YEAR BUILT

1974 (Reno 1993) SOURCE: COSTAR

While lower income residents have been exiting the county, Miami-Dade has enjoyed an inflow of high-net-worth individuals, which brought in $6.4 billion in new wealth to the metro in 2021.

Former residents of New York, New Jersey, Massachusetts, and California now make up 50% of adjusted gross income flowing into Miami-Dade, with recent license exchange data pointing to a continued inflow of new residents from these states.

Office-using sectors have been a bright spot in Miami’s economic recovery, with employment remaining well above prepandemic levels in the professional and business services and financial activities sectors. Miami attracted a number of banks and securities firms during the pandemic, including Citadel, GMC Capital, Melvin Capital, and tech venture capital firm Andreessen Horowitz, to name a few. Overall, Miami’s office sector had job growth of 7.2% in 2022, though gains have slowed through the second half of 2023 to 5.0%. Oxford’s baseline forecast calls for average annual growth of 0.7% in office jobs from 2024 to 2028.

Miami’s startup ecosystem, fueled by strong in-migration, a nation-leading higher education system and a competitive tax structure, will continue to be an important driver of job growth going forward. According to Startup Genome’s Global Startup Ecosystem ranking for 2023, Miami was ranked 23rd in the world, an eight-spot improvement from 2022. Dozens of venture capital funds have offices in the city, and Miami has added more than 20 venture capital funds in the pandemic era. With its riskfriendly, pro-business atmosphere, Miami’s is poised to continue its recent ascension as a fast-growing venture capital center going forward.

Broward County Q4 2023 | OFFICE REPORT BROWARD’S OFFICE MARKET CLOSES 2023 WITH SLOWER TRANSACTION VOLUME DESPITE ATTRACTIVE MARKERS

EXECUTIVE SUMMARY Fort Lauderdale office transaction volume has slowed over the past 12 months, totaling $457 million, below the five-year average of around $830 million. Despite a healthy start to the year, with over $312 million traded in the first two quarters of 2023, volume in the second half of the year fell to $169 million, some of the slowest transaction activity in the past five years. The number of transactions has also slowed with just

1 YEAR AGO

CURRENT

74,876,632

75,069,418

UNDER CONSTR SF

700,231

824,012

12 MO NET ABSORP SF

248,298

223,216

VACANCY RATE

9.93%

9.86%

MARKET RENT/SF

$34.71

$36.13

MARKET SALE PRICE/SF

$251

$246

MARKET CAP RATE

7.64%

7.96%

INVENTORY SF

CHANGE

SOURCE: COSTAR

over 217 transactions occurring in the 12-month

in 2023, down from 24 deals in 2021 and 16 deals in 2022,

period ending in the fourth quarter of 2023, 50%

still these larger deals compose 50% of volume for the year.

below levels seen through the first quarter of 2022,

The largest deal in 2023 has involved Pebb Capital, Intalex

which totaled over 430 transactions. Despite this

Capital, and CDS International Holdings Inc., which acquired

near-term slowdown, the Fort Lauderdale market

100 and 110 E Broward Blvd. in Downtown Fort Lauderdale

remains attractive on a relative basis, as vacancy

for $43 million, or over $125/SF, from Stockbridge Capital in

rates that remain well below the national average

May. Stockbridge had bought the asset back in 2018 for just

suggest that Fort Lauderdale may be somewhat

over $41 million, or over $119/SF. The property was around

insulated from future economic uncertainty when

50% occupied at the time of sale, and the buyers now plan

compared to its high-growth peer markets.

to do renovations on the exterior of the property, elevator

Over 80% of activity in 2023 has been concentrated in the Plantation, Downtown Fort

lobbies, bathrooms, and building amenities to improve the overall tenant experience.

Lauderdale, Fort Lauderdale, Southwest Broward,

Two other major deals, for assets in Plantation and

and Pompano Beach submarkets. Activity in

Southwest Broward, drove volume in 2023. The largest

Cypress Creek and Sawgrass Park has been

deal involved the sale of two medical office buildings

slower over the past few years, although over a

by Healthcare Realty Trust to Boyd Watterson Asset

longer time horizon, these submarkets have also

Management for over $93 million in January. Both properties

seen a significant share of transactions. These

are 3 Star assets, one located in Tampa and the other in

submarkets tend to see the bulk of activity, as

Sunrise. The Sunrise asset sold for over $38 million, or over

they represent a combined 80% of the total office

$356/SF, well above the average market sale price of around

inventory in the Fort Lauderdale market.

$263/SF as of the first quarter of 2023.

Only 10 deals above $10 million have occurred

The second deal, which occurred in March, involved the sale

9

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

MARKET REPORT

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023 10

SALES VOLUME & MARKET SALE PRICE PER SF of the 4 Star Cornerstone One building, located at

$400M

$360

FORECAST

$340

$350M

$320

$300M

$300

$250M

$280

$200M

$260

$150M

$240

$100M

$220

$50M

1200 S Pine Island Road in Plantation. The property, transacted for over $37 million, or over $222/SF. The property previously traded for $32.8 million, or just SALES VOLUME

MARKET SALE PRICE/SF

built in 1991, was 80% leased at the time of sale and

over $193/SF, at an 8% cap rate back in 2000.

High-volume deals, which drove investment activity in the past couple of years, are likely to remain muted as economic headwinds, coupled with elevated

$0

$200

21

22

23

SALES VOLUME

24

25

26

transaction pricing for Fort Lauderdale office remains 20% above 2019 levels, the average transaction price/

PRICE/SF UNITED STATES

PRICE/SF

interest rates, impact pricing. In fact, although average

SF over the past 12 months has fallen around 18% from year-ago levels. Going forward, elevated interest

MARKET CAP RATE

rates will continue to weigh on transaction activity,

9.5% FORECAST

while cap rates continue to trend higher from lows in the mid-5% range in 2022 to over 6.5% today.

9.0%

8.5%

MARKET ACTIVITY 8.0%

Office construction activity in Fort Lauderdale has remained largely muted since 2019, with around

7.5%

432,000 SF in starts in 2023. Around 200,000 SF 7.0%

delivered in 2023, with supply additions expected to remain limited over the forecast period. Since 2018,

6.5%

net delivery of new supply has remained below the 6.0%

21

22 3 STAR FORT LAUDERDALE

23

24

25 FORT LAUDERDALE

4-5 STAR FORT LAUDERDALE

26 UNITED STATES

long-term historical average of around 750,000 SF annually.

Over 78% of supply additions since 2010 have been

MARKET RENT PER SF

composed of 4 & 5 Star assets, with around 78%

$48 FORECAST

concentrated in the Southwest Broward, Plantation,

$46

Sawgrass Park, Downtown Fort Lauderdale, and

$44

Pompano Beach submarkets. Existing assets built

$42

since 2010 as well as properties underway are more

$40

than 90% leased, with more than 70% of available

$38

space concentrated in assets built since 2020 or

$36

currently underway. Over 70% of space available in

$34

these properties is concentrated in four properties,

$32

with around 50% in the T3 Fat Village East and West, which total over 380,000 SF. Fat Village is part of a

$30

development by Hines, in partnership with Urban $28

21

22

3 STAR FORT LAUDERDALE

11

23

4-5 STAR FORT LAUDERDALE

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

24

25

FORT LAUDERDALE

26

UNITED STATES

Street Development, Cresset Real Estate and Las

OFFICE | BROWARD

TOP BUYERS PAST 12 MONTHS

OUTLOOK

THE BROOKDALE GROUP

Office-using sectors have been a bright spot in

KEISER UNIVERSITY

Fort Lauderdale’s economic recovery. Office-using

VERA REALTY

employment is 13% above pre-pandemic levels,

STOCKBRIDGE CAPITAL GROUP, LLC

equating to over 30,000 more jobs, though gains are

BROWARD COUNTY GOVERNMENT

beginning to slow. Despite a near-term economic

HAMMES PARTNERS

slowdown impacting interest rate sensitive sectors

DOUGLAS ANTHONY PERERA, JR.

such as construction, finance, and information, Fort

CDS INTERNATIONAL HOLDINGS INC.

Lauderdale’s strong workforce, business friendly environment, international presence, and quality of life

INTALEX CAPITAL

will likely continue to draw corporate relocations.

PEBB LIVING $10M

$15M

$20M

$25M

$30M

$35M

$40M

$45M

$50M

An influx of retirees along with strong employment

SALES VOLUME - PAST 1 YEAR

gains drove an outperformance in population growth Americas, totaling 835,000 SF of office, retail, and

from 2010 through 2018, though this has slowed in the

residential mixed-use in Flagler Village.

past few years as affordability concerns have driven

The muted supply pipeline should help buoy office fundamentals in the market, though a continued flight to quality will likely result in weaker performance for 1 to 3 Star product in the next few years. That said, Fort Lauderdale vacancy and rent growth trends are expected to outperform the U.S. average as the supply/

residents towards lower cost Central Florida markets.

Still, a strong recovery in net international migration through the first half of 2022 has helped buoy total population, which grew by over 11,000 residents from July 2021 to July 2022 in Broward County, well above the over 3,000 resident growth in Miami-Dade County.

demand balance remains healthier than in many

Strong household and income growth has resulted in

markets across the country.

real household buying power growth of over 41% for

SUBMARKET SALES TRANSACTIONS PAST 12 MONTHS SUBMARKET

SALES VOLUME

TRANSACTIONS

TRANSACTED SF

AVERAGE SF

MARKET CAP RATE

MARKET SALE PRICE/SF

PLANTATION

$95,406,608

24

523,070

21,795

8.1%

$241

FORT LAUDERDALE

$82,646,438

51

351,407

6,890

7.9%

$218

DOWNTOWN FORT LAUDERDALE

$76,655,000

24

432,565

18,024

7.7%

$318

SOUTHWEST BROWARD

$50,720,000

13

122,114

9,393

7.9%

$276

CYPRESS CREEK

$46,534,297

15

292,280

19,485

8.4%

$193

NW BROWARD/CORAL SPRINGS

$39,162,100

30

194,182

6,473

8.2%

$216

POMPANO BEACH

$34,780,000

16

152,164

9,510

8.0%

$211

HOLLYWOOD

$16,527,500

21

75,081

3,575

8.0%

$246

HALLANDALE

$16,473,000

13

27,984

2,153

7.5%

$326

COMMERCIAL BLVD

$2,650,000

1

24,180

24,180

8.0%

$171

SAWGRASS PARK

$675,000

1

2,800

2,800

7.6%

$249

SOURCE: COSTAR

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023 12

RECENT SIGNIFICANT SALES 110 E BROWARD BLVD | 110 EAST Downtown Fort Lauderdale Submarket | Fort Lauderdale, FL 33301 SALE DATE

May 2023

SALE PRICE

$38.8M ($127/SF)

LEASED

49%

HOLD PERIOD 64 Months RBA YEAR BUILT

BUYER

CDS International Holding (USA) +2

SELLER

Stockbridge Capital Group (USA)

BROKER

CBRE

305,440 SF

SALE TYPE

Investment

1981 (Reno 1999)

SALE COND

Ground Lease (Leasehold)

1200 S PINE ISLAND RD | CORNERSTONE ONE Plantation Submarket | Plantation, FL 33324 SALE DATE

Mar 2023

BUYER

The Brookdale Group (USA)

SALE PRICE

$37.9M ($207/SF)

SELLER

AFL-CIO Building Investment (USA)

LEASED

80%

BROKER

JLL

SALE TYPE

Investment

HOLD PERIOD 20+ Years RBA

182,994 SF

YEAR BUILT

1991

1640 SW 145TH AVENUE | KEISER UNIVERSITY S.W. Broward Submarket | Pembroke Pines, FL 33027 SALE DATE

Feb 2023

BUYER

Keiser University (USA)

SALE PRICE

$33M ($456/SF)

SELLER

Keenan Development Group (USA)

LEASED

100%

BROKER

Colliers

HOLD PERIOD 145 Months

SALE TYPE

Owner User

RBA

72,400 SF

SALE COND

YEAR BUILT

2011

Bulk/Portfolio Sale, Purchase by Tenant

4611 JOHNSON ROAD | LYONS TECH CENTER 5 BLDG. A Pompano Beach Submarket | Coconut Creek, FL 33073 SALE DATE

Sep 2023

BUYER

Stockbridge Capital Group (USA)

SALE PRICE

$21.7M ($956/SF)

SELLER

CAP RATE

4.7% (Actual)

Principal Real Estate Investors LLC (USA)

LEASED

100%

BROKER

JLL

SALE TYPE

Investment

HOLD PERIOD 185 Months RBA

22,644 SF

YEAR BUILT

2004

2000 W COMMERCIAL BLVD | CITY COLLEGE Cypress Creek Submarket | Fort Lauderdale, FL 33309 SALE DATE

Jan 2024

BUYER

Broward County Government (USA)

SALE PRICE

$18.5M ($139/SF)

SELLER

Allied Health Education (USA)

LEASED

100%

SALE TYPE

Investment

HOLD PERIOD 34 Months RBA

133,295 SF

YEAR BUILT

1971

SOURCE: COSTAR

Fort Lauderdale, versus 38% for the U.S. average from 2010 through 2021. Demographic growth along with the return of tourists has resulted in gross real retail sales gains in Broward County, growing by over 8.3% in the rolling 12-month period through October 2023 versus December 2019 levels. Despite still elevated sales, real retail sales growth has slowed in recent months from peak annual growth of over 19% seen in the first quarter of 2022, contracting 1.3% in October 2023, as inflation and higher interest rates weigh on consumer demand.

Additionally, housing affordability will continue to present a drag on population growth as lower income households are increasingly priced out of the area. According to the Federal Housing Finance Agency’s purchase-only index, Fort Lauderdale home values have increased by over 65% since 2019, well above U.S. average growth of over 48%. Median home purchase values remain 18% below levels in Miami, presenting Fort Lauderdale as a more affordable option relative to its neighbor in the South, still the rapid rise in housing costs has deteriorated affordability and presents a headwind to future household growth.

Palm Beach County Q4 2023 | OFFICE REPORT PALM BEACH OFFICE MAINTAINS INVESTOR INTEREST AMIDST ECONOMIC HEADWINDS, SEES SHIFT IN BUYER PROFILE

EXECUTIVE SUMMARY Investor interest in Palm Beach office has remained elevated, with annual transaction volume surpassing the five-year average of around $1.1 billion in both 2021 and 2022. Despite the recent slowdown in economic activity, 2023 saw around $600 million transacted, more in-line with prepandemic transaction volume.

Over 80% of 2023 transaction activity was concentrated in the Boca Raton, West Palm Beach and North Palm Beach and Palm Beach Submarkets. With these same submarkets making up over 85% of transaction activity since 2020.

Despite some of the same submarkets seeing a high share of activity, the type of buyer has shifted recently in the market. Private buyers have made up over 77% of trades over the last 12 months up from 66% over the past five years, as institutional and private equity players sit on the sidelines.

Despite fewer institutional players resulting in smaller transaction sizes, two large deals for more than $80 million each have taken place this year.

The largest deal in 2023, and over the past two years, has involved a joint venture between PEBB Enterprises and BH Group, which acquired 6600 N Military Trail for $104 million or $160/SF in April from Office Depot. The property had last traded in 2017 for $132 million or $203/SF and in 2011 for $171 million or $263/SF, highlighting the value contraction of some suburban office campuses.

The buyers plan to implement a substantial capital improvements program to upgrade the property.

15

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

1 YEAR AGO

CURRENT

60,128,224

60,112,985

UNDER CONSTR SF

883,789

963,001

12 MO NET ABSORP SF

1,064,709

-473,860

VACANCY RATE

7.25%

8.02%

MARKET RENT/SF

$43.27

$45.22

MARKET SALE PRICE/SF

$313

$315

MARKET CAP RATE

7.00%

7.27%

INVENTORY SF

CHANGE

SOURCE: COSTAR

Another large deal, which took place in July, involved the purchase of 125 Worth Avenue by Citadel from the Frisbie Group. The three star property, located in the exclusive Worth Avenue strip, represents a footprint expansion by Citadel which in 2022 purchased and now occupies 48,000 SF at the adjacent 151 Worth Ave. This latest purchase serves to highlight the run up in value that some well located office assets have attained in South Florida, in contrast to suburban office campuses. 125 Worth Ave. last traded in October of 2017 for just over $30 million at a 4.4% cap rate, the recent sale values the asset at $83 million at a 3% cap rate, representing 18% compound annual growth in value.

Despite some value gains and lower cap rates in certain deals, higher rates are generally driving office cap rates higher in the market. Well leased office properties, with more than 80% of space occupied, have seen cap rates rise from the mid-five to mid-six percent range from 2021 and into 2022, while some of the latest cap rate readings have risen above 7%. Apart from higher cap rates, slower volume is expected to continue over the coming quarters. High volume deals, which drove investment activity in the past couple of years, have slowed, with only four deals above $20 million in 2023, down from 28 and 17 of these deals in 2021 and 2022 respectively.

MARKET REPORT

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023 16

SALES VOLUME & MARKET SALE PRICE PER SF $360

Despite a slowing economy and higher interest rates

$700M

FORECAST

$600M

$320

$500M

$300

$400M

$280

$300M

$260

$200M

$240

$100M

transaction activity, Palm Beach office is expected to outperform nationally. Palm Beach is one of nine major U.S. markets with expected office value gains through SALES VOLUME

MARKET SALE PRICE/SF

resulting in near-term pricing correction and lower $340

2024 relative to 2019 values. This is largely driven by an expectation of continued rental gains as the market continues to see some of the highest office rent gains in the country, along with Miami and Fort Lauderdale.

MARKET ACTIVITY $0

$220

21

22

23

SALES VOLUME

24

25

26

Office construction activity in Palm Beach remains

PRICE/SF UNITED STATES

PRICE/SF

elevated, totaling 960,000 SF relative to the 10-year historical average of 700,000 SF. Despite the elevated

MARKET CAP RATE

pipeline, construction starts have begun to slow, totaling over 127,000 SF in 2023, down from the over

9.5% FORECAST

590,000 SF that broke ground in 2022. Delivery of

9.0%

new product is expected to remain elevated through 8.5%

2024, but should then begin to wind down by 2025 as elevated interest rates and a softening market impact

8.0%

developer interest. Still, supply additions expected to

7.5%

peak in 2024, totaling over 825,000 SF. Since 2021, 7.0%

net delivery of new supply has remained well above the 10-year historical average of around 77,000 SF

6.5%

annually, with the exception of 2023 which saw no new

6.0%

net deliveries.

5.5%

21

22

3 STAR PALM BEACH

23

24

25

PALM BEACH

4-5 STAR PALM BEACH

26

UNITED STATES

Virtually all supply additions since 2010 have been composed of 4 & 5 Star assets, with around 77% concentrated in the North Palm Beach, West Palm

MARKET RENT PER SF

Beach, Delray Beach, and Boca Raton submarkets.

$56

Existing assets built since 2010, as well as properties

FORECAST $54

underway, are over 96% leased, with more than 80%

$52

of available space concentrated in assets built since

$50

2020 or currently underway. The majority of available

$48

space in these newer properties is concentrated in two

$46

properties under construction, with over 100,000 SF

$44

available at both One Flagler and 300 Banyan Blvd.

$42

Both 4 Star properties are expected to deliver by 2024

$40

in the West Palm Beach Submarket.

$38 $36 $34

The near-term supply pipeline will likely expand 4 & 21

22

3 STAR PALM BEACH

17

23

24

4-5 STAR PALM BEACH

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023

25

PALM BEACH

26

UNITED STATES

5 Star vacancies as these projects lease-up over the

OFFICE | PALM BEACH

TOP BUYERS LAST 12 MONTHS area’s outsized concentration of financial activities and

CITADEL

professional and business services jobs helps drives

BH GROUP

higher median household income levels relative to its

PEBB ENTERPRISES

southern neighbors of Fort Lauderdale and Miami.

KEISER UNIVERSITY

Since 2010, total nonfarm employment in Palm Beach

ALLEN CHELMINSKY

has grown by over 35% versus 20% growth for the U.S.

OAK LANE PARTNERS

Growth has also outperformed in the post-pandemic era

CS VENTURES

with Palm Beach employment gains at over 5.5% versus

ANGLER PROPERTIES LLC

3.6% for the U.S. since December of 2019. Office-using

INVESTMENTS LIMITED

sectors have been a bright spot in the economic recovery

ACCESSO PARTNERS $10M

$20M

$30M

$40M

$50M

$60M

$70M

$80M

$90M

of Palm Beach. Employment is well above pre-pandemic levels in the professional and business services and

SALES VOLUME - PAST 1 YEAR

financial activities sectors, although growth for these next few years, with the continued flight to quality likely resulting in weaker performance for 1 to 3 Star product.

That said, Palm Beach vacancy and rent growth trends are expected to outperform the U.S. average, as the supply/demand balance remains healthier here than in many markets across the country.

sectors slowed in 2023.

The county also boasts the third-largest population in the state, after Miami-Dade and Broward County, with over 1.5 million residents. From April 2020 through July 2022 both international and domestic migration have driven population growth in the county, which has risen by over 26,000 residents over that time period, the tenth

OUTLOOK

largest increase across counties in Florida and higher

With the fourth-highest personal income in Florida, over 60% higher than the state average, Palm Beach is one of the wealthiest counties in the state and country. The

than Miami-Dade and Broward County.

New residents to the South Florida region have brought

SUBMARKET SALES TRANSACTIONS PAST 12 MONTHS SUBMARKET

SALES VOLUME

TRANSACTIONS

TRANSACTED SF

AVERAGE SF

MARKET CAP RATE

MARKET SALE PRICE/SF

BOCA RATON NORTH

$162,900,000

11

985,946

89,631

7.7%

$280

PALM BEACH

$101,335,570

2

72,164

36,082

6.3%

$658

NORTH PALM BEACH

$73,809,999

29

286,215

9,869

7.3%

$289

WEST PALM BEACH

$54,242,000

21

163,160

7,770

7.4%

$257

BOCA RATON EAST

$49,928,767

30

163,692

5,456

7.4%

$314

DELRAY BEACH

$39,636,625

25

114,909

4,596

7.3%

$333

PALM BCH CTY OUTLYING

$19,925,000

12

134,540

11,212

7.3%

$314

BOCA RATON WEST

$19,675,000

4

59,889

14,972

7.2%

$326

ROYAL PALM BCH/WELLINGTON

$18,250,000

11

218,155

19,832

7.3%

$301

WEST PALM BEACH CBD

$13,524,500

9

39,343

4,371

6.5%

$411

JUPITER

$11,719,000

15

126,473

8,432

7.6%

$280

BOYNTON/LANTANA

$7,264,320

11

40,939

3,722

7.3%

$296

PALM SPRINGS/LAKE WORTH

$6,050,000

7

29,890

4,270

7.3%

$316

SOURCE: COSTAR GROUP

ONE COMMERCIAL REAL ESTATE | OFFICE | Q4 2023 18

RECENT SIGNIFICANT SALES 6600 N MILITARY TRAIL Boca Raton North Submarket | Boca Raton, FL 33496 SALE DATE

Apr 2023

BUYER

BH Group (USA) + 1

SALE PRICE

$104M ($160/SF)

BROKER

Butters Realty & Management

LEASED

100%

SELLER

The ODP Corporation (USA)

BROKER

Butters Realty & Management

SALE TYPE

Investment

HOLD PERIOD 68 Months RBA

650,000 SF

YEAR BUILT

2008

125 WORTH AVENUE | 125 WORTH Palm Beach Submarket | Palm Beach, FL 33480 SALE DATE

Jul 2023

BUYER

Citadel (USA)

SALE PRICE

$83M ($1.7K/SF)

SELLER

Dreyfuss Management (USA) + 1

CAP RATE

3.0% (Actual)

SALE TYPE

Investment

LEASED

86%

HOLD PERIOD 69 Months RBA

50,000 SF

YEAR BUILT

1974 (Reno 2017)

6111 BROKEN SOUND PKY NW Boca Raton North Submarket | Boca Raton, FL 33487 SALE DATE

Dec 2023

BUYER

Accesso Partners (USA) + 1

SALE PRICE

$25M ($250/SF)

SELLER

LEASED

75%

Alchemy ABR Investment Partners (USA) + 1

SALE TYPE

Investment

HOLD PERIOD 61 Months RBA

100,000 SF

YEAR BUILT

1986 (Reno 2007)

791 PARK OF COMMERCE BLVD Boca Raton North Submarket | Boca Raton, FL 33487 SALE DATE

Feb 2023

BUYER

Oak Lane Partners (USA)

SALE PRICE

$20M ($127/SF)

SELLER

LEASED

93%

Commercial Financial Management (USA)

HOLD PERIOD 213 Months

SALE TYPE

Investment

RBA

156,898 SF

SALE COND

Debt Assumption

YEAR BUILT

1994 (Reno 2000)

375 S COUNTY ROAD | THREE SEVENTY FIVE BLDG Palm Beach Submarket | Palm Beach, FL 33480 SALE DATE

Jul 2023

BUYER

CS Ventures (USA)

SALE PRICE

$18.3M ($827/SF)

BROKER

Stanwich Group LLC

LEASED

50%

SELLER

M Development, LLC (USA)

HOLD PERIOD 28 Months

SALE TYPE

Investment

RBA

22,164 SF

SALE COND

YEAR BUILT

1984

Deferred Maintenance, High Vacancy Property

SOURCE: COSTAR

in an estimated $23 billion in adjusted household gross with Palm Beach County seeing the most gains, with over $14 billion in household income growth since 2019. Strong household and income growth, has resulted in real household buying power growth of over 67% for Palm Beach, versus 38% for the U.S. average from 2010 through 2021. This growth has resulted in gross real retail sales gains in Palm Beach County of over 18% in the rolling 12-month period through October 2023 versus December 2019 levels. Despite still elevated sales, real retail sales growth has slowed in recent months.

That said, new company moves into the area including Goldman Sachs and Elliot Management have earned West Palm Beach a new moniker as the “Wall Street of the South.” The newly built 360 Rosemary office building, in downtown West Palm Beach, houses these and other financial services firms which have recently moved to the area. The building sits within The Square, a new neighborhood development by the Related companies which includes apartments, retail and mixed-use space. Several New York restaurants have also opened up new locations in the area including Milos, Felice and Harry’s. According to a recent report by Henley & Partners, West Palm Beach is the 4th fastest growing in the world for millionaires over the past ten years, with 90% more millionaires today than a decade ago. This influx of wealth has attracted developers and businesses to the area, a trend that will likely continue over the next few years.

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