The chart below is one of several I prepared that are based on the latest DDA Development Activity Breakdown Report. It represents office/retail development (built, under construction, and approved) from 2002 to mid-2007 in Brickell Village. In an effort to compare DDA data with with an alternative source (to get the best overall picture), I deferred to CBRE’s market outlook. Let’s look at the DDA derived chart first:
Chart Data Source: DDA
According to the DDA, there is currently 1.45 million square feet of office space under construction in Brickell Village. Let’s take a look at what CBRE reports:
The CBRE office construction sum (which doesn’t include office condo development) is +/- 1.4 million sq. ft. This coincides with the DDA figures. Since 2002, there has been a total of 461,000 square feet of new office space added to the Brickell market. The 2007 office construction figure constitutes a major increase in inventory compared to the last five years. There is an underlying concern that the demand for new office space is insufficient for a healthy rate of absorption, but falling vacancies and rising lease rates are contradicting this claim. Let’s take a look at Brickell’s vacancy history since 2004:
Chart Source: CBRE (Market Pulse)
In the second quarter of 2005, while the residential condo market was still hot, vacancies in the office market were at a dismal 16.9%. However, since then (in the third quarter of 2007), vacancies have gone down to 8.0%.
Let’s take a look at recent rental rate averages:
Chart source: CBRE (Market Pulse) [Firefox users, right click to view larger clearer image]
From when the vacancies were at their highest level in the second quarter of 2005 to their lowest point in the 3rd quarter this year, the average rental rate per square foot has gone up from $28.34 to $33.03–with one instance of an asking rate of $50.00 in a prestigious Class A office development (according to CBRE, a first for the Miami office market). Decreasing vacancies and increasing rental rates are healthy growth indicators but the 1.45 million sq. ft. of new space brings the market’s absorption rate into question. Let’s take a look at the rate of absorption for new construction in Brickell Village since 2004:
Chart Source: CBRE (Market Pulse) [Firefox users, right click to view larger clearer image]
As you can see above, there hasn’t been much new space added to the market since 2004 when 260,000 sq. ft. came online. Still, 247,982 sq. ft. was absorbed that same year compared to the 260k added–a pretty good absorption precedent, but minimal when considering the projected 1.4 million sq. ft. coming online during the next year or so.
2008 is going to be pivotal for Brickell Village’s office market. The addition of over 1.4 million square feet of new space will test the market’s vitality but a successful transition will increase the overall value of Brickell Village real estate, create new jobs, add to the commercial and residential allure of BV (which already has higher office rental rates than the CBD), and balance the scales of development more evenly with the heavy residential side. If all goes well in 2008 and into 2009, and growth is proven sustainable, then who knows, the office sector might see a significant construction surge.
NEXT: Commercial Development: Central Business District