'Office tenants flow to Gables from higher-priced locations'

Offices in Coral Gables are gaining popularity as neighboring cities' leasing rates continue to increase.

"Coral Gables being one of the major markets has been one of the lowest in increase on their rental rate for the past year or the last four quarters,'" said a principal at Lee and Associates South Florida, Bert Checa. "Every other market had a significant higher percentage of increase on rental rate. Meanwhile, Coral Gables has steadily increased it, but not as drastically as the other markets. Therefore, it has become the focus for a lot of tenants from the Grove, the Brickell market and the downtown market to target space and Coral Gables."

Three markets are benefiting from Brickell hitting record high rental rates: Coral Gables, Waterford Business District and Doral, said Mr. Checa.

"Those three markets are absorbing all of the legacy tenants that are finding the rates in Brickell, in Coconut Grove and in downtown Miami too high,"' said Mr. Checa. "The tenant's that arc coming into our market from outside, from New York, California, and other large cities in the Northeast are willing to pay these higher rates, but the tenants that have been used to Miami rates are not and are looking towards value markets, comparable Class A quality office space at a
30% discount to what the Brickell rental rates are."

The largest office markets are downtown and Brickell, which are sometimes combined and called the central business district, said Mr. Checa. However, it has been polarized, and the Brickell market is now at triple digit rates "which is currently 20% over year to year from what it was last year. In general, the Miami market is 30%, up from where it was last year when you combine all the markets together."'

"It 's really interesting," he said, "how Miami, in comparison to the rest of the nation, is really outperforming every other market. Actually, Brickell is out performing every market in the country right now with its current rates and it continues to hold record setting Class A rates."

Similarly, other professionals have noticed the domino effect pricing from neighboring cities has had.

The Coral Gables submarket has had its ups and downs over the years, said Jake Weiss, a senior associate with The Easton Group.

Now, the city is starting to see some growth from tenants priced out of Brickell and even Coconut Grove who are looking for more affordable options.

Additionally, Coral Gables location serves as a mid-point for many.

"The Gables fits that...mid-way point with still that central business district feel with the walkability to restaurants and client meetings that are all within a close proximity," said Mr. Weiss.

"I think," said Mr. Checa, "absolutely, Coral Gables will outperform the rest of the markets based on rental rates stabilized at $55 to $65 a square foot for Class A space in contrast and in comparison to the Brickell market, going between $100 and $150 a foot for Class A space."

Coral Gables has a 15% vacancy, said Mr. Checa. Coconut Grove has maintained a flat rate and vacancy for the last three quarters "it's still at 3% vacancy .. . and it's now up to an average of $68 per square foot combined Class A and Class B.''

"Coconut Grove is feeding tenants to Coral Gables as well," Mr. Checa said. "That's another sister market that Coral Gables is attracting tenants from based on the fact that the Grove market is very tight and the rates are record setting numbers currently.

Brickell has an 11% vacancy, said Mr. Checa. The average combined Class A and Class B rental rates arc $85.

"Downtown is 18.2% vacancy," said Mr. Checa, 'They probably, from all of the major markets, still carry the majority of the vacancy. They actually now surpassed Doral, which used to have the largest amount of vacancy. Doral is down to 18% vacancy, so downtown has .5% more vacancy than Doral, and that's an interesting statistic to track because downtown continues to struggle; even though it's been improving areas like Flagler, which came out wonderfully, it still has buildings closer to I-95 that are still struggling to lease up and get back to a 15% vacancy that they had in the past."

Professionals in the field have also noticed the importance of parking and public transportation.

Another factor that is important and decision-makers consider is the cost of parking for their employees, said Mr. Weiss.

Additionally, Mr. Weiss is seeing companies looking to shield their rent growth with acquisition, he said.

"I think that's something we're seeing a lot of as well," Mr. Weiss said, 'hey, we're going to be in a space for .. . IO or 15 years, why don't we find something where we can buy and protect ourselves from the continuing cycle of the rent growth or the rent increases?' I've been seeing that a lot especially in the Gables, because there is the opportunity to buy there."

"The outlook for office rates in Coral Gables is expected to continue its current trajectory.

"I think that office development is stagnant," said Mr. Weiss. "There aren't too many new buildings coming online. Brickell has one building that should be delivered towards the end of the year. The Gables just got The Plaza. There aren't too many new developments in the pipeline which would drive up rental rates
and also drive up supply.

"l think that as more tenants move out of Brickell and even downtown and look to move elsewhere,'' he said, "I think that could be a factor in having rent growth continue in some of the other submarkets like Coral Gables."

About Lee & Associates South Florida

Lee & Associates South Florida is a fully vertical commercial real estate brokerage firm focused on industrial, office, retail, multifamily, investment and land sectors. Our dedicated team of professionals is led by Matthew Rotolante, CCIM, SIOR a 4th generation South Florida native in a family that has owned and operated commercial property here since 1928. Lee & Associates is the largest agent owned brokerage in the nation with Senior Agent’s ability to earn profit share resulting in the highest splits while still receiving full resources, support and leads from our national network. Our collaborative and cheerful culture allows for open communications throughout the company, fostering the sharing of information and best practices to better enable client decision making.  The Lee & Associates’ robust national network that sold and leased over $32 Billion in 2022 offers clients a cross-market platform of expertise and deal opportunities across all asset specialties and representation roles. For the latest news from Lee & Associates South Florida, visit leesouthflorida.com or follow us on Facebook, LinkedIn, Twitter and Instagram, our company local news.

About Lee & Associates

Lee & Associates is a commercial real estate brokerage sales, leasing and management firm. Established in 1979, Lee & Associates has grown its service platform to include over 75 offices in the United States and Canada. Lee & Associates is the largest agent owned commercial real estate brokerage where agents get the greatest return for their efforts and hence are more committed and better enabled to provide superior results for their customers.  For the latest news from Lee & Associates, visit lee-associates.com or follow us on Facebook, LinkedIn, Twitter and Link, our company blog.