This Trend Will Dominate 2016 South Florida Office Market
Skyrocketing land values and increased construction costs– due to the demand created by the residential sector – are two big challenges for office developers to overcome in 2016. But that doesn’t mean we won’t see better office space with higher rents. A trend that started recently and will gain speed in 2016 is the acquisition of office buildings in secondary markets with significant upside potential. Repositioning a good asset in a centrally located area with pent-up demand is a more attractive business model than new construction. That insight was the takeaway from the “Office and Industrial” Panel at Marcus & Millichap’s Commercial Real Estate Forum last week. Malcolm Butters, President of Butters Construction & Development, told the audience that this strategy is performing well for his company. In 2014, Butters and Bristol Group acquired a 205,000-square-foot, 10-story building in Coral Springs with high vacancy. Butters said that presently the building is a few months away from being 90 percent leased.
Purchasing an existing suburban office and renovating it makes more financial sense. For that reason, there is very limited appetite for building new, according to Malcolm Butters.
Miami Gardens is another market with upside potential. During the few weeks I’ve been marketing the 193,406-square-foot Lincoln & Washington Square office complex in suburban Miami Gardens, the response has been surprising. With an asking price of $16.95 M, the 9.6-acre complex has generated a lot of inquiries from both domestic and foreign investors. The property, which features ample space to accommodate large tenants, also has strategic access to mass transit and major expressways, including I-95, the Palmetto Expressway (826) and the Florida Turnpike. This property is a good example of the type of assets that will dominate the transaction landscape this year. As the demand for large space required for education, healthcare, government and other sectors grows, repositioning older assets will be more feasible than building new suburban office buildings – at least in the near future.
By: Alex Zylberglait