Miami office market picks up

A RECORD NUMBER OF NEW OFFICE TOWERS ARE BEING PLANNED FOR MIAMI'S DOWNTOWN AND BRICKELL AREAS DESPITE WORRIES THAT THERE WON'T BE ENOUGH DEMAND

BY MATTHEW HAGGMAN
mhaggman@MiamiHerald.com

Just as a record condo building binge is playing out across Miami's skyline, a record office building binge is just about to start.

Developers want to add three giant office towers in Miami's downtown and Brickell areas, with workers preparing and marketing campaigns under way. Yet some wonder if it's not another case of developers responding to a market need with too much, too fast, just as many think they did with condos.

''There is definitely pent-up demand for new office space, but how much?'' said Peter Harrison, senior vice president at Transwestern Commercial Services. The veteran office broker said the current office proposals are more aggressive than anything he's seen in Miami in his three decades in the market.

For more than a year builders for each of the proposed towers -- called 1450 Brickell, Met 2 and Brickell Financial Centre -- touted their respective projects as the answer to a shrinking supply of office space. But many observers assumed one or two would ultimately back off.

Instead, work crews are now on each site. Each builder has renewed pledges that they have the financial backing and gumption to go forward, whether or not any companies sign leases to rent space before construction starts. All three are marching ahead without announcing a single signed lease.

Some equate the jockeying to a game of chicken.

''If so, it's a very serious game of chicken. There is a lot of money at stake,'' said Jack Lowell, an office broker who represents MDM Development Group, which is building Met 2.

Owning office space has become increasingly desirable, because a lack of recent office construction has driven up occupancy levels and rents. Last month Tishman Speyer of New York, one of the best-known commercial property owners in the world, bought an office complex on Miami's Brickell Key.

If built, the three new buildings would add about 1.9 million square feet of new space by 2010 to a downtown and Brickell area that has some 12 million square feet of office and a vacancy rate of about 10 percent.

So, is there enough demand?

South Florida has long been a home for regional headquarters, but not a magnet for big corporate tenants that gobble up lots of space in one swoop. The average annual absorption for office space in the area from 2003 to 2007 was 287,000 square feet annually, reports Jones Lang LaSalle.

''The talk has been that the office market will be fine if one building goes ahead and it will probably be OK if another is built a year later,'' said Steve Owens, president at Swire Properties, which has built offices, condos and a hotel on Brickell Key. ``But if all three go, we would be potentially challenged.''

Foram Group last month broke ground for Brickell Financial Centre, a planned 40 floors with 602,000 square feet at 600 Brickell Ave. Delivery is set for 2010. The firm, backed by a wealthy Malaysian family, has enough cash to build without a bank loan, said Foram CEO Loretta Cockrum.

''We just can't think about how many others are coming out of the ground,'' she said. ``We have decided the market is there and will compete for the best tenants.''

Similarly, work is already under way on the foundation of Met 2's office and hotel complex, slated to rise 47 stories with 750,000 square feet on Southeast Second Avenue. Insurance giant MetLife is a joint venture partner. Completion is slated for 2010.

1450 Brickell was the first to announce office building plans, with 35 floors and 585,056 square feet planned on Brickell Avenue. Alan Ojeda, CEO of the tower's builder, Rilea Group, said he wouldn't build three office buildings now if he had the land to do it.

Yet he said the coming surge in new office property may not create the glut some fear. For one, vacancy rates should continue shrinking through 2010, he said. And, all of the condo development downtown will bring more people, along with more need for office space.

Also, two of the projects -- Brickell Financial Centre and 1450 Brickell -- are looking to build structures certified green, which may draw tenants. ''If you look at the whole thing, it is adding about 10 percent more space to the market,'' Ojeda said. ``Ten percent doesn't break a market.''

Still, despite construction crews doing foundation work, there is still time to pull the plug.

''From what we see at the moment, it looks like all three are moving forward,'' Owens said. ``But the real truth comes when you come out of the ground. You can put foundations in and stop; cover them up and wait. Yet if you don't stop there, you must finish the building.''