Miami's Commercial Market
Sizzles with Rising Rents

Miami's commercial real-estate market is still heating up, even as landlords grapple with skyrocketing insurance costs after Hurricanes Katrina and Wilma last year.

The Miami-Dade region's office, retail, warehouse and rental apartment sectors all posted rising rents and declining, below-average first-quarter vacancy rates, according to Property & Portfolio Research Inc., a Boston-based real-estate research firm.

Miami's strong office market prompted Rilea Group to develop a new project at 1450 Brickell as office space rather than as residential units.

Meanwhile, investors remained hungry for a piece of the action in Miami. Many investors are enticed by the area's steady growth in population, as well as its increased international stature. The region's population rose about 1% to 2.4 million in the first quarter from the year-earlier period, according to Moody's Economy.com, a unit of Moody's Corp.

"While Miami for all practical purposes is the capital of South America, it has attracted growing investment from Europe that has made for a much more stable investment environment," says Michael Harrison, senior vice president of Hines, a Houston-based real-estate company. Its affiliate, Hines Real Estate Investment Trust Inc., purchased the Airport Corporate Center, an 11-building office park, for $157 million in the first quarter. Mr. Harrison says the cooling appetite for condominiums has helped make for a strong office market by reducing the land available for new office developments that compete for tenants.

The dollar volume of property sales in the industrial, office and retail sectors is expected to top last year's levels as larger institutional investors snap up properties from smaller private investors, according to Mark Gilbert, executive director of the capital markets group for Cushman & Wakefield. Mr. Gilbert is based in Miami. Only the apartment sector has seen the pace of deals drop off, as slowing demand for condominiums has damped interest from would-be condominium converters, Mr. Gilbert says.

Average sale prices fetched by retail properties rose to $221 a square foot this year through June 29 from $156 last year, well above the national average of $154, according to Real Capital Analytics Inc., a New York-based real estate research firm. Meanwhile, the average price for office properties rose to $213 a square foot this year from $164 last year, about in line with the national average of $211.

About 2.1 million square feet of retail space is expected to be completed this year, up 74% from last year, and some office projects are also in the works, PPR says. Alan Ojeda of Rilea Group is in negotiations with potential anchor tenants for a proposed 580,000-square-foot office building at 1450 Brickell Avenue in Miami's financial district. The project was originally proposed as residential units.

But the economy's pace appears to be downshifting, slowed in part by a cost of living that is 11% higher than the national average, according to PPR. Job growth for the year from May 2005 stood at about 1.5%, down from a pace of about 2.7% from May 2004 to May 2005, according to the Bureau of Labor Statistics.

Insurance premiums have soared and some commercial building owners have had trouble getting coverage at all, but they hope the region can make it through this hurricane season unscathed so rates will come down.

Espirito Santo Plaza, a 1.2 million-square-foot mixed-use office, hotel and condominium complex on Brickell Avenue, is paying $5.8 million this year for half of the wind insurance coverage it got last year for $1 million. Joseph Senker, vice president of operations for Estoril Inc., which owns the property, says they are still working to repair the many shattered windows damaged by Hurricane Wilma, though the new season is already upon them.

Hank Bush, principal of Miami-based Bush Development Group, says his company recently delayed buying a 13-story office building in nearby Fort Lauderdale by about a month until he could determine the impact of insurance premiums on his operating costs.

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