Miami's Office Market Is Solid
Despite Real-Estate Slump

While Miami has been hit hard by the housing bust, and the condominium construction cranes still dotting the skyline signal the worst is yet to come because more supply is on its way, the housing problems haven't spread to the city's commercial real-estate market so far.

Office vacancies are stable at near all-time lows, industrial space is hard to find, and Miami, which doesn't have a glut of shopping centers, is one of the few cities in the U.S. that can claim to be "under-retailed."

"The commercial market is as hot as it's ever been," says Jon Bourbeau, a senior managing director at Newmark Knight Frank, a commercial real-estate services firm based in New York.

Still, the downturn in Miami's housing sector has the industry on alert. In August, sales of single-family homes fell 45% from a year earlier, while median prices still rose 4%, the Florida Association of Realtors says. Condominium sales and prices made similar moves in August, with prices up 5% and sales down 44%. In a market that already has a 36-month supply of units, more than 24,000 condos are expected to come onto the market by 2011.

"We're obviously concerned about [housing], but at the current time we're still seeing strong, steady growth" in commercial real estate, says Scott Strickland, a senior vice president in Miami at Jones Lang LaSalle Inc., a commercial real-estate services firm based in Chicago.

Loretta H. Cockrum is so confident in the office market that she is building a 600,000-square-foot office tower in the Brickell area of downtown -- without having an anchor tenant. "Miami's not much of a prelease market," says Ms. Cockrum, chief executive of Foram Group Inc., a real-estate company based in Miami. A second phase will add an upscale hotel and more office space.

Brickell Financial Centre is one of three major office towers being built in and around the city's downtown. That raises the specter of an office space glut when the buildings open in late 2009 or early 2010. Combined, the trio will drop 1.7 million square feet in one year on a market that normally absorbs only about 300,000 square feet a year. In addition, some sites that were slated for residential projects not long ago are being switched to commercial uses, Mr. Bourbeau says.

That will mean an increased office-vacancy rate and will ease upward pressure on rents, which have been rising at an annual pace of 11%. For now, demand for top-notch space in downtown is still high, says Scott Sime, a managing director in Miami for CB Richard Ellis Group Inc., a commercial real-estate services firm based in Los Angeles.

While Miami's central business districts have been spared, the area's suburbs have been hit harder. Data from Newmark Knight Frank that include Palm Beach and Broward Counties in addition to Miami-Dade County show vacancies increased to 10.3% in the third quarter from 8.8% a year earlier. The third quarter marked the second time in a year that the three counties combined saw a decline in occupied space.

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