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Smart office: making intelligent lease deals in a landlord's market
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Smart office: making intelligent lease deals in a landlord's market
South Florida CEO, June, 2007 by Scott Brenner
Ever hear of the Golden Rule? Not the "do unto others" one. The one that says supply and demand control who gets the gold. Right now in South Florida's office market, the landlord has the gold.
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Gone are the days of the 1980s and 1990s when the tenant was king and vacant office space was abundant.
So where did all the office space go?
It is occupied. According to commercial real estate information service CoStar Group Inc., South Florida's office vacancy rate was 8.3 percent at the end of the first quarter. The housing boom of 1998 to 2005 caused the value of land to skyrocket as hungry developers hoarded relatively cheap commercial properties and rezoned them for residential projects. Office development dropped off. Then in 2004, construction costs began inching upward, further squeezing new development.
With construction costs so high, the investment for a developer to create new product to enter a market is daunting. It has been a long time since many Class A buildings were built in the region. Projects are in the planning stages, but developers have been waiting. Less new product means less competition for landlords when a tenant needs space.
With less competition for landlords and increasing tenant demand, rental rates have been increasing steadily since 2001. According to CoStar Group Inc. in its "South Florida first quarter 2007 Office Market Report," the average quoted asking rental rate for available office space, all classes, was $27.65 per square foot per year. This represented a 3.4 percent increase from the end of fourth quarter 2006, when rents were reported at $26.75 per square foot. In 2001, rental rates for all classes hovered around $22. |
Posted date : (2007-08-30) |
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