A few weeks ago the developers of a new Class A office development, 1450 Brickell Avenue announced the signing of their first tenant, Bilzin Sumberg Baena Price & Axelrod LLP. The announcement of the 80,000 square foot transaction was met with great enthusiasm in the real estate community as it was the largest lease in the Downtown/Brickell Avenue market this year.
I agree, the signing of this lease is cause for some optimism. Clearly, the long term commitment of a major local law firm to a new development is a positive sign. It is an indication that companies are gaining confidence in the future and are able to make lengthy future commitments.
However, despite the positive feelings there is still great cause for concern. The other reality of this lease is when Bilzin Sunberg moves in January 2011 they will be vacating 100,000 square feet at the Wachovia Financial Center. The downtown office market will now have 20,000 square feet of negative absorption as the net effect of this transaction.
There has not been much speculative commercial development in this country. That is why I believe in general the commercial market will fare better than the residential market has in this cycle. One of the major exceptions to where new development has occurred is in central business district (CBD) markets such as Miami. Downtown Miami and Brickell Avenue have three major office developments in progress including 1450 Brickell set to be delivered in the next 18 months. The addition of more than 1.5 million square to the market is set to push already high vacancy rates even higher. Most experts believe Downtown Miami’s office vacancy will soon be in excess of 15%.
My concern is how does this community fill that space? As we just discussed, the only new tenant at 1450 Brickell is an existing tenant in the market that is downsizing. Similarly, one of the other new developments in the market, the 753,200 square foot Met 2 has three signed tenants that are also existing tenants in the market which will move from older buildings. If all we are going to do is reshuffle our existing tenant base, we can not expect to absorb this space.
In order to have positive absorption three things will need to happen; we need existing tenants to grow, we need companies to move to the market and we need new business to start. Until those things occur we can not expect occupancies in Class A, Downtown Miami office space to increase. So while the Bilzin Sumberg lease is cause for some optimism we have a long way to go before truly good news in CBD office.
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