After pandemic rush, South Florida office market sees steady demand

After pandemic rush, South Florida office market sees steady demand

For years, Angelo Bianco, a Florida developer, drove past the vast, wooded IBM corporate campus near Interstate 95 in Boca Raton, Florida, without paying much attention to it. But his interest peaked when a broker informed him that the property was for sale.

IBM designed the secluded 550-acre site in the 1960s because it “didn’t want people in its secret development lab space,” Mr. Bianco said. It was here that its engineers designed the first personal computer as well as the prototype of the first smartphone.

In its heyday the complex employed approximately 10,000 employees, but when IBM moved its operations to Raleigh, NC and eventually sold the property in 1996, the site became a white elephant. A series of owners struggled to successfully renovate it, sold tracts, and eventually renamed it the Boca Raton Innovation Campus.

The site was acquired five years ago for a reported $179 million by a group of buyers led by CP Group, a commercial real estate firm where Mr. Bianco works as a managing partner. After studying contemporary corporate campuses belonging to Apple, Google and Nike, the company decided to open it up to the community rather than keep it hidden from view, Mr. Bianco said.

As hybrid work models evolve and the workplace changes, commercial real estate owners are rethinking what a corporate office should look like — even in a market like South Florida , which has proven better insulated from the downturn in office space that has hit others. Metro areas like New York and San Francisco.

Office vacancy rates nationally exceeded 19 percent in the third quarter of this year, near their record dating back to 1991, according to Moody’s Analytics. Cities with substantial new construction, such as Dallas and Austin, Texas, saw higher vacancy rates. But Miami is among the markets where vacancy has declined.

After an initial rush to the suburbs during the peak of the pandemic, tenants in Florida are again looking for space in downtowns and central office districts, said Jonathan Kingsley, vice president of real estate advisory firm Colliers International. And they’re looking for a more robust experience as they try to get employees back into the office.

“They need a fitness center or wellness room, access to restaurants and maybe some retail,” Mr. Kingsley said.

But incorporating new amenities that will appeal to today’s workers is an expensive prospect for developers, who also face limitations on access to public transportation and constant competition for space, especially in the South Florida market.

Hedge funds and technology companies that moved to the area, or expanded there, during the pandemic have snapped up real estate. Billionaire Kenneth C. Griffin attracted attention with the purchase of office buildings in Palm Beach and Miami’s trendy Brickell district, where he intends to build a skyscraper that will house his hedge fund Citadel.

Crowding has declined over the past three years, but demand has remained relatively stable in the three counties that make up South Florida: Miami-Dade, Broward and Palm Beach. Newcomer tenants account for 21 percent of the 3.8 million square feet of active deals in Miami-Dade since the start of 2023, said Terre Blanca, chief executive of Blanca CRE. Rents have remained stable, and in some of the hottest neighborhoods, like Brickell, they have increased.

A key reason for the continued strength, Ms. Blanca said, is that the region attracts a diverse range of industries rather than relying on one or two sectors. Typically, businesses open regional headquarters or smaller offices – some hoping to take advantage of the new talent that has moved to the area.

Another attraction are the investments made by well-capitalized owners who aim to build the community, creating what they call a “tenant experience” with updated amenities and events, often including food trucks or a 5-kilometer run.

The Y-shaped one-story office building at the center of the Boca Raton Innovation Campus was designed by Marcel Breuer and Robert F. Gaetje and is the largest in the state. To update it, CP Group added skylights, courtyards, entrances and amenities, such as a convenience store, a beauty salon, coffee shops and art exhibits that are open to the public, as well as a walking trail in the center of the property. There are also trails and lakes.

“We want people to feel like they’re getting more than just an office when they come here,” Mr. Bianco said. “People no longer want to work in an environment that is disconnected from the world. “They want energy, excitement and things to have.”

Scott Sherman, founder and principal of Toros Equities, a Miami-based developer, said office space, like its retail counterpart, can thrive only if it is relevant and well-located. In August, the Toros closed on a 222,000-square-foot office building built in 1972 in pedestrian-friendly Coral Gables, Florida, for a reported $54.4 million. His company intends to update the building with new features to attract tenants.

“More and more companies are saying you have to come into the office three, four, five days a week,” Mr. Sherman said. “The more enjoyable the office environment is, the easier it will be to bring people back in.”

When Andrew B., co-founder and principal of Urban-X Group, a developer in Coral Gables, When Hellinger began construction of River Landing, a shopping center, rental apartments and a dock along the Miami River in 2018, the top floor was promised to AMC Entertainment. Then came the pandemic, and the theater chain, in deep financial trouble, was happy to abandon the location.

In its place, Mr. Hellinger and his partners converted the three floors at the top of the complex into 150,000 square feet of office space. Now, he said, the offices are 75 percent leased.

“The market is beginning to understand that work is not just a place to go to an office and leave,” Mr. Hellinger said. Even for those who commute, “you’ll want to be out and about and not deal with traffic.”

Mr Kingsley of Colliers said commuting challenges were a key reason more companies were prioritizing proximity to public transport. Potential tenants “want to make it easier for employees, to motivate them to come to work,” he said. For example, a British-based design firm that wanted to open an office in South Florida told her it had clear requirements: a “cool, attractive location” near public transportation.

The new expanded high-speed rail line in Florida, called Brightline, is a “game-changer,” says Andrea J., professor of finance and academic director of real estate programs at the University of Miami Herbert Business School. Hewson said. Train service would allow greater access to the northern part of South Florida, where fares are lower, which he said could ultimately lead to Miami-Dade losing out in favor of Broward and Palm Beach.

In fact, the highest price per square foot in Mr. Bianco’s Boca Raton building is about half the highest rent in the South. The property’s proximity to Tri-Rail’s Boca Raton station, the busiest stop on the 70-mile-long commuter rail line, is an attraction — they hope it will make the complex even more attractive.

The Boca Raton City Council recently voted to rezone the property so his company can move forward with plans to add 1,250 apartments, a grocery store, restaurants, a hotel and a performance venue.

As Mr. Bianco guides potential tenants through the building and shows off what appears to be the world’s longest hallway — 907 feet — he points to a collection of photographs from the beginning of the computer revolution.

“I tell them when IBM was here, it was the same company as Google and Apple,” Mr. Bianco said. Maybe that lineage is part of greed. The building is now 90 percent leased, up from 70 percent when his group took ownership.

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