Real estate agents are increasingly concerned that first-class office buildings offer too much space to sublet shadows.
Even though another project needs to be considered, downtown West Palm Beach’s office market is full of empty space, and real estate professionals say there is little demand for renters outside the area to rent large offices.
Surveys of real estate developers and estate agents indicate that the city’s Class A office buildings, which usually attract the top tenants, have sufficient space directly in the buildings or by office tenants who are trying to rent their space. These sublet offices are a shadow market, indicating that the actual supply of office space is much larger than expected. In fact, the prime A buildings are about 80 to 85 percent full, which means that at least 10 to 15 percent office space is available in each building.
“There are big holes in all buildings,” said a real estate agent who asked not to be named. “Where’s the demand?”
The space flood is revealed when two new office buildings are constructed in downtown West Palm Beach and a third tower is due to be approved by a city committee. The Downtown Action Committee will vote on whether the One Flagler office tower will be allowed to raise 25 floors on land if it has five floors near South Flagler Drive and Okeechobee Boulevard.
The tower would offer 261,000 square meters of office space for rent. These buildings complement the existing range of first-class spaces in the city center. This area includes Class A buildings such as Phillips Point, Esperante and CityPlace Tower.
“Back in June, I had 17 percent vacancy in front of the new buildings,” said Neil Merin, chairman of NAI / Merin Hunter Codman in West Palm Beach. “Adding Rosemary 360 and One West Palm, both under construction and scheduled to open in 2021, will bring the vacancy rate to 35 percent. With 360 Rosemary, One West Palm and possibly One Flagler, you’re talking about 750,000 square feet. But even in the prime, we can only take up 100,000 square feet a year. The space will not only last for years, but will also lower rents in other office buildings.”
A developer from Flagler, Related Cos., argued for the tall tower, saying there is a lack of Class A rooms with the amenities and water views provided by private equity firms and hedge funds Northeast would be sought to make room in the city center. However, according to brokers and developers of commercial real estate in the city center, numerous high-quality office spaces are currently available.
“This is due to the fact that the market has seen flat to negative net absorption in the past two years when some companies left and others signed new contracts for smaller spaces,” experts said.
Real estate sources say the flood of space and new office buildings coming onto the market frighten some building owners who want it. In fact, it can be assumed that the Phillips Point office complex will be launched next year, as well as other buildings.
“The market is getting nervous,” said a source.
Phillips Point is a Class A office tower on 777 S. Flagler Drive. The two-tower complex offers water views, luxurious finishes, and a top tenant list. Among them: AMG, a global wealth management company.
AMG endeavors to sublet the entire 11th floor of the east tower, which is 16,000 square meters in size and offers a breathtaking view of the water. Also available is a first-class room with a view of the water on the 10th floor of the East Tower, which was once occupied by the Arnold & Porter law firm, which still rents out the room. The 8,000 square meters of space are available for subletting.
“In fact, 84 percent of the 460,000 square feet at Phillips Point are occupied,” brokers said.
Over there in Esperante, at 222 Lakeview Avenue, the 25,000 square meter tower, according to the real estate agent, has 48,000 square meters of rental space available, which corresponds to an occupancy rate of around 82 percent.
Even if sought-after hedge funds and private equity companies rent space, they don’t take much with them. Instead, they typically look for small offices that are sometimes between 800 and 1,200 square feet, according to an expert in commercial leasing. According to brokers, more than 95 percent of the Class A office buildings in the city center were fully let for a short time, but have adjusted to their historic occupancy rate of 80 to 85 percent.
“There weren’t many significant new businesses in downtown West Palm Beach,” said Peter Reed, managing partner of Commercial Florida Realty Services. “It’s still a mess” of existing downtown tenants.
For example, a new tower under construction, 360 Rosemary in Rosemary Square, has replaced Comvest from the nearby CityPlace Tower. It also attracted Lewis, Longman & Walker Law from Northbridge Center, where the firm rented 16,000 square meters. Now both the Cityplace Tower and Northbridge have to fill the soon empty space in their buildings.
At CityPlace Tower on 525 Okeechobee Boulevard, the last new tower in the city center since 2008, the occupancy of the building is only 72 percent according to the leasing information on the website and the broker data. The brokers market a 21,160-story sublease on the 9th floor. The rental price is $ 39 net per square foot, less than the market price of more than $ 50 per square foot for the area in the building.
In addition, according to the building’s website, the 300,000 square meter building has a further 64,127 square meters of rental space. This includes the top two floors where Intech used to be and which have moved to the One Clearlake Center on Australian Avenue.
Source: The Media Times