(Bloomberg)—Financial and technology firms settling in Miami are boosting the office market in the sunny South Florida city at a time when buildings across the U.S. are struggling.
Leasing is surging, pushing up rents. And demand is spreading from core business districts such as Downtown and Brickell -- where Apollo Global Management Inc. and Blackstone Inc. have taken space -- to residential areas where Wall Street and Silicon Valley executives scooped up multimillion-dollar homes during the pandemic.
“You have the big firms move here and they’re starting to attract other smaller firms that want to be around them and service them,” said Ryan Holtzman, a Miami-based managing director at brokerage Cushman & Wakefield. “We’re seeing a ton of new-to-market tech, law firms coming in, whereas pre-pandemic, they would’ve never thought of Miami.”
Now, office projects are sprouting up close to where their employees live.
Over the past year, New York-based hedge funds quickly filled Related Group’s boutique property in Miami’s trendy Coconut Grove neighborhood. Starwood Capital Group just completed its new headquarters in Miami Beach, not far from where Chief Executive Officer Barry Sternlicht has a home. Starwood and its partner are bidding on more office projects nearby, in an entertainment district famous for its Art Deco hotels and opulent houses.
Wealthy Northeasterners and Californians have long flocked to Miami, drawn to its warm weather, outdoor lifestyle and lower taxes. The pandemic accelerated that shift. After buying lavish homes as lockdown retreats, many of the 2020 migrants became permanent residents, enrolling their children in private schools and establishing social networks in the city.
That’s led to a wave of office leasing, with companies including Microsoft Corp. and private equity firm Thoma Bravo taking space in Miami to house their growing workforces. Amazon.com Inc. chose a WeWork location in nearby Coral Gables for roughly 100 employees.
“We’ve never been this busy, seen this much growth,” said Holtzman, who has worked in the area for 17 years. “And it’s only the beginning.”
Small But Growing
That’s counter to what’s happening in other U.S. business hubs including San Francisco and New York, where empty office space is piling up. Employers are reassessing their real estate needs as many of their workers, reluctant to resume long commutes, embrace permanent hybrid schedules.
Miami-Dade County’s office market is small, with just over 46 million square feet (4.3 million square meters) of space, compared with 408 million square feet for Manhattan, according to fourth-quarter reports by Cushman & Wakefield. The 2.8 million square feet of new leases signed in the region last year, while the most since 2005, was about a fourth of the total in midtown Manhattan alone.
Companies are still drawn to Miami’s commercial center, where New York-based Related Cos. has plans for what’s billed as Florida’s tallest office skyscraper. But to capitalize on growing demand, developers are pushing beyond the city’s congested business hubs.
It’s a bet that people who moved to the area to work remotely from their spacious homes want the perks of spending time in an office, but don’t want to tangle with traffic to get there.
In Coconut Grove, tenants at Related Group’s 2850 Tigertail Ave. can enjoy valet parking, electric car charging stations and the private art collection of the developer’s CEO, Jorge Perez. A branch of the Manhattan brunch staple Sadelle’s is a one-minute walk from the building.
Dan Sundheim’s D1 Capital and Casimir Holdings -- an investment firm co-founded in 2020 by Sequoia Capital partner Jim Goetz and Geoff Swerdlin -- signed leases at 2850 Tigertail last year. Cerberus also agreed to take space in the building, according to people familiar with the matter. Representatives for Cerberus and Related Group declined to comment on the lease.
“A lot of executives are coming in and buying expensive single-family homes in Coral Gables and Coconut Grove and want to be close to their offices and not have to deal with traffic,” said Nick Perez, senior vice president at Related Group. “That, coupled with the proximity of the best schools in Florida, really creates a short commute for everything they’d need -- open green space, schools, food, retail, without having to go to the urban core.”
In Miami’s Design District, known for its swanky restaurants and luxury fashion stores, developers including Brookfield Properties and Dacra Development Corp. are building a 15-story office tower fitted with outdoor space and 360-degree views. Starwood’s new headquarters in Miami Beach features private cabana balconies and verdant landscapes.
In today’s world, those are must-haves, according to Victor Ballestas, principal of Miami-based Integra Investments, Starwood’s development partner.
“The one thing that we’re seeing in high demand is outdoor amenities in the office that we weren’t used to building in the past,” Ballestas said.
The leasing boom and new construction of new high-end space pushed asking rents up 8.6% in the fourth quarter from a year earlier, Cushman & Wakefield data show.
Costs in some submarkets rose to records, including Miami Beach, where landlords sought an average of $59.87 a square foot at top-quality buildings. Coconut Grove was one of the priciest areas, at $66.55 for Class A space. That’s a bargain compared to Manhattan’s Class A average of $76.29, according to the brokerage.
New York developers are among those seeking a slice of the action.
Manhattan-based L&L Holding Co. has teamed up with Carpe Real Estate Partners to build a mixed-use complex in Miami’s Wynwood Arts District.
Related Cos., the firm behind New York’s Hudson Yards, is planning its first office project in the city, a tower in the Brickell neighborhood set to rise more than 1,000 feet (305 meters). The developer already has properties in West Palm Beach that have attracted the likes of Goldman Sachs Group Inc. and Point72 Asset Management.
“The momentum in the Miami office market is extraordinary,” Related Chairman Stephen Ross said in a statement. “The large national firms we work with across the country are actively seeking the world-class office product we’re known for delivering.”
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