CITY HIGHLIGHT, FEBRUARY 2008

FT. LAUDERDALE CITY HIGHLIGHTS
Ken Morris

Ft. Lauderdale Office Market

At present, the Ft. Lauderdale office market is showing signs of increasing vacancy rates and negative absorption across most sub-markets. At present the overall vacancy factor for Class A office space in Broward County (Ft. Lauderdale area) is 17 percent with an additional 2 percent available for sublet space, average triple net rents are in the $31 per square foot range. Class B office space has a vacancy factor in the 12 percent range; average triple net rents are in the $24.11 per square foot range. A recent trend in the market is an increase of sublet space available in most every sub-market and what appears to be a dramatic slow down in deal velocity.

Some noteworthy projects under construction or recently completed includes Stiles Development Corporation’s Lake Shore Plaza II in Sunrise which will present another 135,000 square feet of Class A suburban space to the market. In downtown Ft. Lauderdale, Stiles Corporation has also recently completed the 200 Las Olas Circle building which consists of 204,000 square feet and is the newest Class A building to be completed in Downtown Ft. Lauderdale. Also in the Sawgrass submarket Duke Realty is constructing Sawgrass Pointe II a Class A building which is offering 90,000 square feet in three floors. In Miramar, Liberty Property Trust has broken ground on the Class A Liberty Center at Monarch Lakes building one which consist of 110,000 square feet on four floors and delivery is expected in the third quarter of 2008.

Overall, the office market is feeling the effects of a slowing local and national economy. The two major economic engines the region depends on are tourism and housing development. Housing development in South Florida has basically skidded to a halt which has negatively affected all of the allied industries that rely on it for business — lenders, title companies, law firms, building trades, etc. have all seen major retractions in their businesses in the past quarter, and expect that trend to continue through all of 2008. A prime example of this effect is the large sublet in the Sawgrass submarket is offered by ABN AMRO/Citibank which has placed all 99,000 square feet of its regional mortgage operations on the market. Almost every sub-market is now seeing either flat or negative absorption.

Until the housing development industry starts to recover and national macro economic trends start changing for the better, it is likely that the office market will face leaner and tougher conditions in 2008. It’s more than likely that tenant concession packages will increase as landlords attempt to backfill recently vacated space, or fill brand new space that has recently been completed.

The office condominium trend of recent years appears to be finished, at least temporarily due to lack of demand. Many office condominium conversion projects have reverted back to leasing the unsold space.

On the investment side, Institutional money remains the driving force behind most building acquisitions with average cap rates for multi-tenanted Class A buildings remaining well below 7 percent on average. The demand for product from institutional and foreign investors will likely keep cap rates low for the near term even though the market leasing fundamentals are weakening.

The Ft. Lauderdale area office market faces a tougher year and possibly into the early part of 2009. The fact that land remains scarce (and expensive), and construction costs remain high do provide formidable barriers to new buildings to be developed which should provide a moderating effect on the market. It’s unlikely that vacancy factors will jump dramatically but Landlords should be prepared for tougher times ahead.

— Ken Morris, SIOR, is president of Morris Southeast/CORFAC International in Plantation, Florida.

Ft. Lauderdale Industrial Market

As one of the tightest industrial markets in the country, the Ft. Lauderdale industrial market is now showing signs of increasing vacancy rates across most sub-markets. At present the overall vacancy factor for industrial space in Broward County (Ft. Lauderdale area) is 6 percent with an additional 1 percent available for sublet space, average triple net rents are in the $8.50 per square foot range. The industrial market is also feeling the effects of a slowing local economy due in part to the stalling out of the residential development industry. Industrial tenants that are in the allied building fields are in many cases reducing their space and some going out of business altogether.

A recent spate of development in the market will add some upward pressure to vacancy rates overall but do provide some much needed space to the market. Some noteworthy projects under construction or recently completed include the following:

• Premier Turnpike Park developed by Premier Commercial Realty has broken ground on a 404,000-square-foot, four building project located in the Northern part of the county at the Sample Road/Turnpike Interchange. The project features 32-foot clear ceilings.

• Butters Development is developing the Pompano Center of Commerce in the City of Pompano (also Northern Broward County) that will be a 615,000-square-foot premium manufacturing, distribution and R&D project located just West of I-95 and South of Copans Road.

•In Southwest Broward, Flagler Development has broken ground on the Sunwest Commerce Center located at the southeast quadrant of I-75 and I-595 in Sunrise. The project is offering 75,000 square feet of industrial condominium space for sale.

Even though the local economy is facing tougher times ahead this year, the industrial market will likely remain relatively tight compared to historical standards. Southeast Florida still remains the gateway to Latin America and many of the goods that travel down to South America are shipped through and stored in the region’s distribution centers.

Just as in the office market, Institutional money remains the driving force behind most building acquisitions with average cap rates for multi-tenanted industrial buildings remaining well below 7 percent on average. The demand for product from institutional and foreign investors will likely keep cap rates low for the near term even though the market leasing fundamentals are weakening.

The industrial market should be seeing slower deal velocity through 2008 but well placed and thought out projects will likely continue to do well for some time to come.

— Ken Morris, SIOR, is president of Morris Southeast Group/CORFAC International in Plantation, Florida.

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