Miami Office Market Report | Q2-Q3 2022

Even though Florida’s office sector held strong during the pandemic, some investors are now feeling cautious as a result of geopolitical tensions, inflation, reduced spending, and rising interest rates. Despite the cooling sentiment, vacancy rates for commercial spaces are continuing to decrease across the State, especially in the office market. Fuelling Florida’s continued market positive is an overall increase in jobs, combined with low unemployment rates and generally favorable business conditions.

Market Highlights

Asking rates in Miami Beach have increased significantly, with some offices costing more than $120 sq/ft. On average, however, actual rental prices for this premium market are much lower, at roughly $70 sq/ft.

Additionally, the vacancy rate for Miami Beach is relatively low at 12.7%, just behind Brickell and Wynwood. Consequently, there has been a recent uptick in development activity driven by those looking to take advantage of the favorable conditions. Some notable projects include 1177 Kane Concourse (101,000 sq/ft) and Terminal Island Office Project (161,000 sq/ft), slated for delivery in 2024.

Already fully leased, the premium 830 Brickell development is expected to be completed by the end of 2022. The last few leases were signed at $120-$150 sq/ft, highlighting the value that tenants place on amenity-rich, Grade A+ office space in the center of Brickell.

Hybrid Gaining More of a Foothold

It’s also clear to see that companies in Miami are now more open to the idea of hybrid working models, something which has risen in prominence ever since the COVID-19 pandemic. Office providers are racing to meet demand for hybrid-conducive workspaces. Highlighting this, The Industrious is planning to open a 27,000 sq/ft coworking space in Downtown West Palm Beach, adding to their existing location in Brickell. This is just one example of the numerous office spaces across the city looking to cater to hybrid workforces and take advantage of growing desire for agile, flexible workspace.

Setting a Healthy Example Amongst Other Major Markets

Miami’s office market is experiencing continuous growth, with new and existing businesses taking advantage of the low taxes, enviable weather, and quality office spaces that the area provides. Quarter-to-quarter demand has been high across the Miami CBD, an area which has seen some of the lowest vacancy rates in the country since 2021. Wynwood saw a 5.2% decline in vacancy from Q2 to Q3, with this trend expected to continue in the months ahead as major tenants, such as PwC and Mindspace, begin to occupy their offices.

Miami Office Market Data Q2 – Q3, 2022

Q2 2022 – Key Takeaways

• Inventory – 42.25 million sq/ft (15.23M sq/ft city & 27.01M sq/ft suburban)
• Overall vacancy – 16.9% (16.6% city & 17% suburban)
• Net absorption – 90,400 sq/ft
• Average asking rents – $47.32 per sq/ft (full service/lease rate)
• Under construction – 1.3 million sq/ft

Q3 2022 – Key Takeaways

• Inventory – 42.25 million sq/ft 
• Overall vacancy (Class A and B) – 16.2% 
• Net absorption – -64,474 sq/ft
• Average asking rents – $51.31 per sq/ft
• Under construction – 1.41 million sq/ft
• YTD completions – 212,254 sq/ft

Class A vs. Class B Office Space in Miami

Q2

Class A

• Inventory – 21.93 million sq/ft (8.96M sq/ft city & 12.98M sq/ft suburban)
• Total vacancy – 17.5% (16.2% city & 18.4% suburban)
• Net absorption – 208,000 sq/ft (36,400 sq/ft city & 171,500 sq/ft suburban)
• Under construction – 1.303 million sq/ft (829,300 sq/ft city & 473,200 sq/ft suburban)
• Average asking rents – $58.39 per sq/ft ($66.88 city & $50.68 suburban)

Class B

• Inventory –  17.67 million sq/ft (3.63M sq/ft city & 14.04M sq/ft suburban)
• Total vacancy – 16.9% (20.9% city & 15.8% suburban)
• Net absorption – -124,700 sq/ft (36,300 sq/ft city & -161,100 sq/ft suburban)
• Under construction – Nil
• Average asking rents – $37.09 per sq/ft ($44.05 city & $35.34 suburban)

Q3

Class A

• Inventory – 25.66 million sq/ft (10.51M sq/ft city & 15.15M sq/ft suburban)
• Total vacancy – 18.5% (18% city & 18.9% suburban)
• Net absorption – 59,453 sq/ft (33,210 sq/ft city & 26,243 sq/ft suburban)
• YTD net absorption – 831,227 sq/ft (358,580 sq/ft city & 472,647 sq/ft suburban)
• Under construction – 1.24 million sq/ft (1.02 million sq/ft city & 218,954 sq/ft suburban)
• Average asking rents – $59.07 per sq/ft ($72.45 city & $47.84 suburban)

Class B

• Inventory – 20.66 million sq/ft (6.14M sq/ft city & 14.52M sq/ft suburban)
• Total vacancy – 13.4% (14.4% city & 13% suburban)
• Net absorption – -123,927 sq/ft (21,332 sq/ft city & -145,259 sq/ft suburban)
• YTD net absorption – -244,090 sq/ft (114,327 sq/ft city & -358,417 sq/ft suburban)
• Under construction – 168,000 sq/ft (137,000 sq/ft city & 31,000 sq/ft suburban)
• Average asking rents – $37.41 per sq/ft ($41.15 city & $35.94 suburban)

Business in Miami

With a population of over six million people, South Florida is the largest metro area in the Southeast and one of the fastest growing regions in the United States. Acting as a global gateway to the Americas, South Florida is thriving in industries such as trade, tourism, finance, entertainment, and art.

More than 1,400 multinational corporations are headquartered in South Florida, including American Airlines, American Express, Citrix Systems, Oracle, and Carnival Corporation, all of which are lured by the diverse and burgeoning talent pool.

The economy in Miami has generally favorable conditions for business enterprise, and it is growing, attracting companies from all over the world to expand or relocate their operations to the South Florida area.

Demand for Office Space

Q2 lease activity in Miami declined from Q1, however, was still up 16.5% from the 667,000 sq/ft leased during the second-quarter of last year. Some 1.8 million sq/ft were leased during the first half of 2022, with 64% of this space found in Class A office buildings.

The continued flight-to-quality over affordability has driven companies to choose well-located options with high amenity factors. The Brickell Avenue submarket of the Miami CBD recently surpassed the Airport West submarket in leasing activity due to strong pre-leasing of the nearly completed 830 Brickell project. Net absorption has remained positive at a moderate level, however, this is expected to increase by 2024 as more newly built projects are delivered.

From a bird’s eye view, investors observed new market demand and timed their transactions to close before interest rates increased. In this way, they gained office space totaling $804 million sold – a 200% increase from Q1. The biggest deals happened in the central business district, with 1221 Brickell and Miami Tower accounting for 56% of all sales this past quarter. This highlights that investing in the CBD is wise right now.

Q3 saw net absorption lower across Miami, with notable losses seen in the Kendall and Miami Airport areas. The majority of these losses were seen in Class B office space, with Class A office space seeing a positive net absorption of close to 60,000 sq/ft. When it comes to the notable central locations, Q3 saw positive net absorption across the board for the CBD, Downtown Miami, and Wynwood areas, juxtaposed to a loss of 36,900 sq/ft in Brickell.

Construction

Following a recent rise in corporate relocations to the Miami area, developers remain confident about the future of the office market. Currently, 1.5 million sq/ft are underway in thriving areas such as Brickell, Wynwood, and Coral Gables. In Q2, Citadel – a major global hedge fund – announced its plans to move headquarters here and build an office tower on Brickell Bay.

Of the 1.5 million sq/ft under construction, less than 200,000 sq/ft is considered Class B office space, further highlighting the prevalence of high-quality workspace.

Average Rents

On the whole, average asking rents in Miami have been steadily increasing year-over-year, and Q2 was no exception. Class A asking rents in the CBD increased by 8.7% YOY to $60 per sq/ft, compared to $48.93 per sq/ft a year ago. Premium space demand was pivotal in pushing rents for the market as a whole, up 7.9% YOY. This Class A price boom is especially notable because it marks the first time that premium space asking rents in Miami’s CBD have ended a quarter above $60 sq/ft – a new record high.

Rents for Class A Brickell office spaces increased a staggering 27% year-over-year to $78.35 sq/ft, driving up the average rate for Class A spaces in the city to a record-high of $58.39 sq/ft – a 12.4% increase from Q2 2021.

The average rental rate for all types of office space in Miami increased significantly from January to June 2022, rising 4.1% to $46.24 sq/ft. The prime office average rent also experienced a large rise during the first six months, increasing 5.9% to reach $51.16 per sq/ft as of June 2022.

Q3 saw many of these trends continue, with Class A asking rents reaching $72 in the CBD and an eye-watering $81 in Brickell. Average asking rents for all classes of office space across the Miami area also increased, reaching $51. The cheapest rental rates are currently seen in the Miami Lakes, Miami Airport, and Kendall areas – all below $40 sq/ft.

Vacancy Rates

The office sector’s recent performances and recovery, which started during the third-quarter of 2021, is further reflected in the 20 bps decrease in vacancy from Q2 2022. Since the end of 2021, vacant space has edged downward 80 bps from the 18.2% peak recorded halfway through 2021.

Q2 saw a vacancy rate of 16.9%, a year-over-year decrease which represented a loss of 190 bps. This trend continued in Q3, where vacancy rates reached 16.2%. The amount of available sublease space also decreased by 84,000 sq/ft, equaling 1.4% of total inventory. In comparison to last year, this is a 27% decrease in available sublease space, with most new leased spaces being taken up by tenants rather than landlords reclaiming them directly.

Despite being more impacted by the pandemic, Class A office spaces seem to be experiencing the strongest comeback. In the last 12 months, overall vacancy rates dropped faster for Class A space than Class B space.

The vacancy rate fell ever so slightly this quarter, but is expected to rise in the year ahead as 91,000 sq/ft of new office space will be delivered; with the completion of the Wynwood Office Building and Society Biscayne. 830 Brickell will deliver more than 630,000 sq/ft of additional office space to market; however, it is already largely leased up by committed tenants.

Investment Sales

After setting a new annual sales record in 2021, the first half of 2022 continued to see healthy sales volumes, closing at $1.7 billion. When annualized, this is set to surpass the previous year’s level. 

Office investment sales accounted for 52% of all investment sales during the past six months, which is above the pre-COVID level of 49%. One notable sale was 1221 Brickell Avenue, trading for $286.5 million, or $701 per sq/ft. Citadel Enterprise Americas purchased this 93% leased asset from Rockpoint in June 2022.

Flexible Office Space

Even though many workspaces across the country tend to offer flexibility when it comes to lease terms, true flexible office spaces actually make up a relatively small section of total office stock across the United States. A 2022 report by Colliers outlines that just 1.3% of total office inventory is considered flexible workspace, as of Q2, 2021.

Out of all the major CRE markets in the country, Miami holds the third most flexible workspaces as a percentage of total inventory, at 2%. This percentage, whilst small, is only beaten out in this category by San Francisco (3.2%) and Manhattan (2.5%).

As even more companies begin to accommodate hybrid working, and in ever higher volumes of their workforce, it’s expected that the proportion of flexible space in Miami’s CRE market will continue to increase.

What about the Wider Miami Commercial Real Estate Market?

Industrial Space

Despite the 2.2 million sq/ft of new inventory delivered during Q2 of 2022, overall vacancy remained level from the previous quarter. Additionally, Miami’s industrial market continued to see record-level occupancy, rising 80 bps to 97.7% YOY – a record high for the county over the past 20 years.

The demand for new warehouse and distribution space was the main reason for Miami’s strong performance. It is worth noting that the construction completions in the first half of 2022 already matched the total new inventory built during 2020, and is on track to surpass annual delivery rates from 2017 through 2019 (which averaged 4.1 million sq/ft per year). 

At Q2-end, over 25.6% of Miami’s 6.0 million sq/ft of underway projects had been pre-leased.

Demand for Industrial Space

Miami hiked to a new quarterly net absorption record in Q2, however, it only just surpassed the record set in Q2, 2021. One element that bolstered this new record was Amazon’s filling of over 1 million sq/ft of industrial space in the South Dade submarket at the beginning of April. 

However, newly established leasing dipped from Q1 to Q2 by more than 2 million sq/ft, landing at around 1.6 million sq/ft leased for the period. Although activity dropped off from Q1 levels, numbers for the first half of 2022 (5.2 million sq/ft of uptake) grew slightly over those seen in 2021, highlighting the strong start to the year.

Price per Square Foot – Industrial Space

Robust demand pushed rents in Miami to record highs this year, with the overall average reaching nearly $11.00 sq/ft by Q3. This is more than double the previous economic cycle and can be attributed to the rise of ecommerce, and the dramatic growth in logistics and supply chain distribution. Rents for warehouse and distribution space have now topped $10.00 sq/ft for the first time ever due to this increased demand.

Miami’s designation as the gateway to South and Central American commerce, and the go-to city for Latin American travelers, has continued to bolster port facilities and wealth outcomes. This has led to the observed surge in demand for industrial space, reflected in higher rents.

Retail Space

With a 3.2% vacancy rate (the lowest it has ever been for this property type), and annual growth of 9.1%, Miami’s retail market is expanding at a much faster pace than the national average of 4%. The majority of the 3.5 million sq/ft that is currently under development has already been leased, so it’s not expected that new supply will have much of an effect on rent growth in the near future. Future performance depends on how well Miami’s tourism sector recovers.

The Coral Gables retail market is currently experiencing a boom, with 667,000 sq/ft of new construction in progress spread across three buildings. An impressive 83.2% of this new space has already been leased, making Coral Gables the 8th most popular submarket in the greater Miami area. 

Retail space rents averaged out at $43.06 per sq/ft across Miami by the end of Q2, 2022. Miami Beach is one of the most expensive retail markets in America, with asking rents exceeding $80 per sq/ft triple net on average.

Over the past year, sales have reached an all-time high of $2.7 billion with a market capitalization rate of 5.4%. Even though interest rates recently increased, the average market sales price per sq/ft of $422 is still above the city’s pre-pandemic peak.

Influence of Employment Figures on Miami’s CRE Market

The overall unemployment rate in the United States reached 3.5% in September 2022, higher than the August 2022 unemployment rate of 2.3% see in Miami-Dade County. This is a 330 bps decrease from the same time last year. Additionally, over 80,000 non-agricultural jobs have been added throughout the past year – amounting to a 6.8% increase, that totaled more than 1.2 million positions for the county overall. With job growth being experienced in all but the Government and Information sectors (which lost a combined 2,200 jobs YoY), it’s evident that industry in Miami is seeing an uptick.

Some of the fastest-growing sectors for employment are in Leisure and Hospitality (a YOY gain of 19,100 positions) and office-using occupations, including Professional and Business Services, Financial Activities, and Information. In the last 12 months, those three sectors saw a combined gain of 26,500 jobs.

Jobs growth across the board in Miami increased significantly in the past year, with a 5.9% average increase, up on the 2.2% pre-COVID growth average. In Miami specifically, this translated to 146,400 new jobs from June 2021 to June 2022.

Outlook for the Miami Office Market

The rent rate in Miami has increased significantly more than the national average, growing 6.6% in comparison to the 1.1% change across the country. This is largely due to an increase in office-using employment sectors and a higher demand for Class A and B assets, which are now 7.5% more expensive than they were previously at H2 2021. Different businesses such as law firms, financial institutions and tech companies have also contributed to fuel this fire of growth.

According to current projections, the Miami office market is anticipated to be more successful in 2022 than it has been since the pandemic initially hit. Many companies are now wanting their employees to return full-time and as a result, there will be an increased demand for high-quality office space with luxurious amenities that will help attract workers back.

Miami’s office market was consistent during the first half of 2022, experiencing a net absorption of 300,000 sq/ft. The vacancy rate then decreased by 0.4% to 15% at mid-year 2022. And with travel and tourism on the rise again, Miami will likely see an overall market improvement, given the huge role the retail and cruise industries play in the area.

Further Insights

Looking for more articles and analysis surrounding the US office market? You can find a number of recent posts below! Alternatively, if you’re a business or freelancer looking for flexible workspace in the US, we can help to connect you to a wide range of serviced offices and coworking spaces in highly sought-after locations such as New York City, Los Angeles, Houston, Atlanta, Miami, Chicago, and Dallas. You can also call our commercial real estate experts to have a discussion about your requirements on 972-913-2742.

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Tags: 2022, flexible office space, industrial space, Miami, office market, retail space

This entry was posted on Friday, October 28th, 2022 at 8:04 am and is filed under 2022, CRE, Market Overviews, Miami, Trends and Statistics.