Savills Studley Report South Florida office sector Q4 2018

Savills Studley Research South Florida

SUMMARYMarket HighlightsLEASING HOLDS STEADY

Transaction volume fell slightly, decreasing from 1.5 million square feet (msf) to 1.4 msf, but was on track with the market’s long-term average. Tenants have leased 6.0 msf in 2018, down slightly from 6.1 msf leased in 2017.

AVAILABILITY UP SLIGHTLY

South Florida’s overall availability rate posted a slight increase, rising by 30 basis points to 17.5% in the fourth quarter. The Class A availability rate rose by 10 basis points to 18.7%.

RENT INCHES HIGHER

The overall average asking rent in South Florida ticked up by 0.2% to $33.80 and has jumped by 6.4% year-on-year. The Class A average rent increased by 0.6% to $38.53 and has registered a 5.8% year-on-year spike.

SALES DOWN

Office property sales during the first eleven months of 2018 totaled $2.6 billion, a 13.1% decrease compared to the same period of 2017.

"Steady demand for space in livable/

walkable settings has sparked steady

leasing in Downtown Fort Lauderdale and

the Wynwood Arts District. Elevated labor

and land costs have kept development

restrained relative to prior cycles. In turn,

leasing conditions are challenging for many

tenants."

Bob Orban,

Senior Vice President,

02

Savills Studley Report | South Florida

Leasing Sticks to Steady Course

South Florida’s overall economy and office market stayed on a steady path of expansion during 2018. The region added 11,700 office-using jobs (a 1.7% increase) during the last 12 months. This was slightly below national growth during the last 12 months.

South Florida did not capture Amazon but the region continues to win some site selection contests here and there. SR Technologies recently selected Miami for its national headquarters, leasing 77,116 sf at 1619 NW 136th Avenue in Sunrise’s Sawgrass Technology Park. The company will add 40 jobs and invest $1 million in capital improvements. SR Technologies plans to consolidate from several different offices in Davie, and is growing by 40,000 sf. The wireless communications company was considering locations in the Washington, DC region, but noted that the region's software engineering talent was a key reason for their decision to remain in the region.

Leasing activity has been steady in South Florida, averaging just under 1.0 msf three consecutive quarters. Healthcare (as well as government agencies and educational institutions have been a steadying force. In the fourth quarter Convey Health Solutions signed a 47,819-sf lease at 3140-3188 Executive Way. The health insurance services and technology firm will move from another building within the Miramar Park of Commerce. The 500-person office is shifting to the newest property in the office park – the company noted the ability to customize their space and flexibility as reasons for the choice. In Boca Raton, Modernizing Medicine too 37,818-sf at 1300 Sawgrass Corporate Parkway. The insurance sector has been active. Solis Health Plan inked a 20,000-sf lease in Doral.

Law Firms & Banks Remain Mobile

South Florida's office market is seeing a fair amount of movement within the region by banks, law firms and general professional business services. These relocations come as more expanding companies realize the need to intensify their competition for talent. Traditional office space occupiers are seeking modern space in prime areas that align with the preferences of millennials. Many banks and law firms are dedicating less space per employee and using some of the extra space for meeting rooms, huddle rooms and training centers.

Source: Bureau of Labor Statistics^

2009

2010

2010

2012

2013

2014

2015

2016

2017

2018

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80Millions

SFL. Office Emp. SFL. (% Annual Change) U.S. (% Annual Change)

Office-Using Employment Trends

$38.53

$30.86$28.69

$23.83

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Q4 '18Q4 '17Q4 '16Q4 '15Q4 '14Q4 '13

Rental Rate Trends

Class A Class B & C

Asking Rent Trends ($/sf)

18.7%21.7%

16.4%

20.7%

0%

5%

10%

15%

20%

25%

30%

Q4 '18Q4 '17Q4 '16Q4 '15Q4 '14Q4 '13

Availability Rate Trends

Class A Class B & C

Availability Rate Trends

savills-studley.com/research 03

Q4 2018

Tenant Sq Feet Address Market AreaConfidential 40,550 1619 NW 136th Ave Sunrise/PlantationKauffman Rossin & Co PA 65,000 3310 Mary St Coral Gables/GroveCity National Bank 56,611 100 SE 2nd St Downtown MiamiTherapeuticsMD 55,164 951 Yamato Rd Boca RatonModernizing Medicine 55,000 4700 Exchange Ct Boca RatonMacNeill Group 37,818 1300 Sawgrass Corporate Pky Sunrise/PlantationBrickell Bank 37,000 1395 Brickell Ave BrickellUBS 36,698 100 SE 2nd St Downtown MiamiAmerican Resource Management Grou 29,431 4410 N State Road 7 Cypress Creek/Fort LauderdaleN/A 25,791 8151 Peters Rd Sunrise/Plantation

Sum of Leases 439,063

With most law firm leases signing terms of 10 years or longer, building out settings that meet the preferences of millennials will be ever more critical given the changing demographics. In many markets across the U.S., expanding businesses are focusing almost exclusively on urban locations. In South Florida, some companies are taking advantage of more opportunities in suburban locations. Kelley Kronenberg announced plans to break ground on its new headquarters in Davie. Currently located on Peters Road in Plantation the firm will expand into a 35,000-sf building at 10360 W State Road 84. The building will accommodate 150 employees and feature the latest technology and open space. A few other firms are making the move from CBD to suburban office parks. Kubicki Draper recently signed a 20,511-sf lease at the Datran Center in Kendall and will relocate from 25 West Flagler next year. The firm noted that proximity to mass transit and where their employees live as reasons for the move.

The financial sector has also been active. Following its acquisition of TotalBank in June, City National Bank of Florida announced that it will expand on TotalBank’s 48,000 sf space at Miami Tower and add another 56,611 sf. The bank will occupy 105,000 sf at the building. City National will vacate its space at 1450 Brickell and gain new signage in the transaction. Brickell Bank signed a 37,000-sf lease renewal at 1395 Brickell Avenue. The bank signed the renewal prior to its expiration next year.

Downtown Fort Lauderdale has been on a leasing run throughout 2018. Akerman and Berger Singerman signed lease The Main Las Olas and will both move from Las Olas Centre. The two leases were announced at Stiles’ groundbreaking ceremony for the new 357,000-sf office building in October. The 2.7-acre project will also have 341 multi-family units, a grocery store, restaurants and shops. The new project will provide much needed relief to a very tight Downtown Fort Lauderdale market – the Class A market only has x blocks of 20,000 sf or more.

Tenants looking for a block of 20,000 sf or less have more options in other areas such as Palm Beach County. Investment management firm Intech signed a 25,000-sf lease at One Clearlake Centre. They will take the building’s top two floors and negotiated exterior signage in the lease. The global investment firm is moving from CityPlace Tower. Asking rent in One Clearlake Centre is roughly 40% less than the $50-plus/sf rent in CityPlace. The new owners added a

creative tenant lounge and offering wellness program.

Biotech and pharma firms are also on the move. Therapeutics MD, Inc. signed a 56,212-sf lease at 951 Yamato. The pharmaceutical firm will relocate from its 32,000-sf location at 6800 Broken Sound Parkway. A company spokesperson noted that they had outgrown their current space and were drawn to the open space floor plan. Tenants leased nearly 1.0 msf in Boca Raton during 2018. Even so, the Class A availability rate in Boca Raton has still increased by nearly 200 basis points from year-end 2017, ending 2018 with a rate of 21.2%.

Development Spreading to Other Areas

This cycle has seen transformative leasing and development activity in emerging neighborhoods such as the Wynwood Arts District. Additionally a few towns that have previously permitted mostly residential and

hotel development, have recently approved major commercial developments. Several buildings are underway in the Arts District. CIM Group paid $16.6 million for a 1.78-acre site at 2201 N. Miami Avenue. CIM will co-develop the site with the seller, local developer One Real Estate Development. The site has approvals in place for just over 70,000 sf of office space, 30,000 sf of retail and 257 multi-family units. This will be the first new development on North Miami Avenue in more than a decade.

In Delray Beach, more than $950 million in construction permits have been filed with the city. Most of the properties are four to five stories. Edwards Companies is constructing Atlantic Crossing. The complex on the corner of Federal Highway and Atlantic Avenue will have 83,000 sf of office space, 261 apartments and 73,000 sf of retail.

Availability Rate Comparison Rental Rate Comparison ($/sf)

Major Transactions

$43.88

$42.49

$40.01

$39.91

$39.29

$34.69

$33.84

$33.80

$32.40

$31.52

$31.42

$31.28

$30.47

$30.11

$28.91

$28.05

$25.36

$24.81

$24.51

$0 $10 $20 $30 $40 $50

Brickell

Downtown Fort Lauderdale

Coral Gables/Grove

Downtown Miami

NE Dade

US Index

Palm Beach

South Florida

South Dade

West Miami/Airport

SW Broward

Boca Raton

North Palm Beach

Hollywood/Hallandale

Sunrise/Plantation

Boynton/Delray

Cypress Creek/Fort Lauderdale

Miami Lakes/Hialeah

North Broward

11.6%

12.5%

12.9%

13.2%

13.5%

15.8%

16.2%

16.3%

16.7%

16.7%

17.5%

17.7%

17.9%

18.1%

18.5%

20.4%

20.5%

20.6%

24.9%

0% 5% 10% 15% 20% 25% 30%

Hollywood/Hallandale

Coral Gables/Grove

South Dade

North Palm Beach

Boynton/Delray

North Broward

NE Dade

Palm Beach

West Miami/Airport

Brickell

South Florida

Miami Lakes/Hialeah

US Index

Downtown Fort Lauderdale

Sunrise/Plantation

Cypress Creek/Fort Lauderdale

SW Broward

Boca Raton

Downtown Miami

Savills Studley Report | South Florida

04

Submarket Total

SF(1000's)

Last 12 Months

ThisQuarter

%Change

fromLast Qtr.

YearAgo

ThisQuarter

ppChange

from Last Qtr. (1)

YearAgo

ThisQuarter

%Change

fromLast Qtr.

YearAgo

Miami Lakes/Hialeah 2,965 136 525 12.7% 512 17.7% 2.0% 17.3% $24.81 -10.4% $24.09Miami Lakes/Hialeah - Class A 821 37 205 16.1% 183 25.0% 3.5% 22.3% $26.63 -24.6% $27.13West Miami/Airport 10,926 520 1,821 0.5% 1,684 16.7% 0.1% 15.4% $31.52 1.2% $29.26West Miami/Airport - Class A 5,361 173 1,097 6.9% 934 20.5% 1.3% 17.4% $33.61 0.4% $31.03Downtown Miami 8,023 235 1,997 -3.0% 1,906 24.9% -0.8% 23.8% $39.91 0.4% $38.68Downtown Miami - Class A 5,074 186 1,295 -6.1% 1,208 25.5% -1.6% 23.8% $45.88 2.5% $44.22Brickell 7,146 406 1,197 9.9% 1,081 16.7% 1.5% 15.1% $43.88 -4.6% $43.13Brickell - Class A 4,665 224 754 2.5% 663 16.2% 0.4% 14.2% $50.83 -0.3% $48.87Coral Gables/Grove 8,991 538 1,126 -6.6% 987 12.5% -0.9% 11.1% $40.01 0.2% $38.89Coral Gables/Grove - Class A 4,884 226 635 -4.0% 621 13.0% -0.5% 12.7% $42.41 0.3% $41.44North Broward 3,365 153 532 16.9% 546 15.8% 2.3% 16.2% $24.51 1.6% $23.36North Broward - Class A 1,065 63 205 11.1% 237 19.2% 1.9% 22.3% $28.14 1.5% $25.83Cypress Creek/Fort Lauderdale 8,429 510 1,720 -3.1% 1,700 20.4% -0.6% 20.2% $25.36 -0.1% $24.80Cypress Creek/Fort Lauderdale - Class A 2,445 194 507 -6.2% 655 20.8% -1.4% 26.8% $27.73 0.5% $26.71Sunrise/Plantation 6,627 544 1,226 10.0% 1,545 18.5% 1.7% 23.3% $28.91 0.4% $26.87Sunrise/Plantation - Class A 4,202 265 775 5.9% 984 18.4% 1.0% 23.4% $32.43 -1.6% $30.60Downtown Fort Lauderdale 5,212 313 944 -2.1% 834 18.1% -0.4% 16.0% $42.49 -1.1% $40.51Downtown Fort Lauderdale - Class A 4,228 215 852 -1.8% 734 20.2% -0.4% 17.4% $43.29 -1.2% $41.44Southwest Broward 3,796 120 780 11.0% 318 20.5% 2.0% 8.8% $31.42 -2.0% $28.19Southwest Broward - Class A 2,591 78 540 -0.5% 283 20.8% -0.1% 11.7% $33.02 0.9% $29.27North Palm Beach 4,015 289 531 34.9% 484 13.2% 3.4% 12.1% $30.47 4.5% $29.47North Palm Beach - Class A 1,518 158 156 38.3% 179 10.3% 2.8% 11.8% $32.50 6.7% $31.14Palm Beach 6,411 456 1,046 -1.9% 1,072 16.3% -0.3% 16.7% $33.84 3.6% $31.71Palm Beach - Class A 2,618 200 405 -7.4% 475 15.5% -1.2% 18.1% $40.47 7.0% $38.21Boynton/Delray 2,103 90 284 -9.4% 782 13.5% -1.4% 38.7% $28.05 8.1% $26.12Boynton/Delray - Class A 384 9 78 2.9% 43 20.4% 0.6% 14.4% $33.40 36.3% $24.81Boca Raton 11,210 892 2,315 1.5% 2,039 20.6% 0.3% 18.2% $31.28 0.6% $30.32Boca Raton - Class A 5,712 388 1,211 -4.6% 1,085 21.2% -1.0% 19.0% $34.44 2.5% $34.04Miami-Dade County Total 50,134 2,317 8,500 0.7% 7,614 17.0% 0.1% 15.3% $37.24 0.2% $35.30Miami-Dade County Total - Class A 25,322 674 4,648 1.7% 4,122 18.4% 0.3% 16.3% $42.19 -0.2% $40.40Broward County Total 29,610 1,922 5,453 4.0% 5,205 18.4% 0.7% 17.7% $30.12 -0.8% $28.22Broward County Total - Class A 14,866 930 2,914 0.2% 2,945 19.6% 0.0% 20.0% $34.59 -0.6% $31.95Palm Beach County Total 23,739 1,802 4,176 3.0% 4,377 17.6% 0.5% 18.5% $31.60 2.2% $29.82Palm Beach County Total - Class A 10,232 805 1,850 -2.4% 1,782 18.1% -0.5% 17.6% $35.55 4.5% $34.64South Florida Total 103,483 6,041 18,129 2.2% 17,196 17.5% 0.4% 16.7% $33.80 0.2% $31.76South Florida Total - Class A 50,420 2,409 9,412 0.4% 8,849 18.7% 0.1% 17.7% $38.53 0.6% $36.42

LeasingActivity

AvailableSF

AvailabilityRate

Asking RentsPer SF

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(1) Percentage point change for availability rates. Unless otherwise noted, all rents quoted throughout this report are average asking gross (full service) rents psf. Statistics are calculated using both direct and sublease information. Short-term sublet spaces (terms under two years) were excluded. ^Unless otherwise noted, source for data is Savills Studley.The information in this report is obtained from sources deemed reliable, but no representation is made as to the accuracy thereof. Statistics compiled with the support of The CoStar Group. Copyright © 2019 Savills Studley

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Corporate Research ContactKeith DeCoster - Director, U.S. Real Estate Analyticskdecoster@savills-studley.com