South Florida Commercial Real Estate Market Shows Slow but Steady Improvement
Moderate Growth Expected for Office and Industrial Sectors through 2013; Uptick in Investment Sales Mirrors National Activity
Newmark Grubb Knight Frank (NGKF), one of the world's leading commercial real estate advisory firms, shared its view on the South Florida commercial real estate market at the company’s 2013 State of the Market event on April 4, 2013. The outlook was presented to clients at a reception featuring keynote speaker Robert Bach, national director, Market Analytics, as well as a number of NGKF market specialists.
Based on the company’s proprietary research, market fundamentals have remained relatively steady over the past quarter across South Florida. The office vacancy rate fell slightly across the board, with Broward County ending the quarter with the lowest level in the region at 16.1%. The industrial sector also performed well, with vacancy inching downward in both Broward County and Palm Beach. Miami recorded quite a bit of activity; however, vacancy remained relatively flat due to the delivery of the 335,000-square-foot Miami International Distribution Center.
“Across South Florida, over 1.1 million square feet of office leasing activity was tracked in the first quarter,” said Jon Bourbeau, vice chairman in NGKF’s Miami office. “The majority of deals came from tenants already in the market in the form of expansions, renewals, relocations and, in some cases, contractions, but the pendulum appears to have swung with demand outpacing supply.”
As a result of this market improvement, and the fact that new development across South Florida has been kept in check, asking rents for both office and industrial product are expected to increase moderately over the next several quarters, andlandlords will feel less compelled to offer leasing concessions as the year progresses. Still, stronger signals of widespread economic recovery are needed before robust growth takes hold.
Mr. Bach explained that improving market fundamentals, especially job growth, retail sales and the housing market, bode well for commercial real estate on a national basis, and said that South Florida in particular is benefiting from a rebound in the residential sector.
“The spike in demand for residential real estate is a harbinger of stronger growth on the commercial side,” Mr. Bach said. “This is especially true for retail, as homeowners look to remodel existing properties or homebuilders deliver new projects.”
Activity in South Florida’s investment sales market has been fueled by competitive, long-term low interest rate financing and a continued demand for yield by investors. This is true across a variety of product types, such as multifamily, retail and office.
“The pending purchase of 1111 Brickell Avenue by Principal Global Investors underscores the fact that South Florida is attracting global private and institutional capital,” said Michael Lapointe, executive managing director, NGKF Capital Group.
The region’s hospitality sector remains one of the strongest in the country. Over a 10-year period, the compounded annual growth rate in RevPAR is one of the highest in any major domestic city as Miami continues to move toward becoming a true12-month market. Improving fundamentals coupled with longer-than-average hold periods are producing high per-key valuations.
Another property type that will continue to attract investors both locally and nationally is healthcare real estate. Todd Perman, executive managing director, Global Healthcare Services, explained how the Obama administration’s Affordable Care Act is having an impact on this sector and the effect it is likely to have on South Florida.
“Healthcare currently makes up 18 percent of the gross domestic product, and due to a growing and aging population, this figure is expected to increase to 22 percent, with 30 million new patients entering the market over the next several years,” Mr. Perman said. “This trend will fuel demand for healthcare properties, and prompt healthcare organizations to aggressively explore cost reduction strategies and efficiencies.”
For more information about NGKF’s outlook for the South Florida commercial real estate market or to obtain full reports for Miami, Palm Beach and Broward County, contact Mira Matic at 973.461.9005.
About Newmark Grubb Knight Frank
Newmark Grubb Knight Frank is one of the world's leading commercial real estate advisory firms. Together with its affiliates and London-based partner Knight Frank, Newmark Grubb Knight Frank employs more than 11,000 professionals, operating from more than 340 offices in established and emerging property markets on five continents.
With roots dating back to 1929, Newmark Grubb Knight Frank’s strong foundation makes it one of the most trusted names in commercial real estate. Its integrated services platform includes leasing advisory, global corporate services, investment sales and capital markets, consulting, program and project management, property and facilities management, and valuation services. A major force in the real estate marketplace, Newmark Grubb Knight Frank serves the local and global property requirements of tenants, landlords, investors and developers worldwide. For further information, visit www.newmarkkf.com.
Newmark Grubb Knight Frank is a part of BGC Partners, Inc. (NASDAQ: BGCP), a leading global brokerage company primarily servicing the wholesale financial and real estate markets. For further information, visit www.bgcpartners.com.