Post-pandemic, South Florida’s office market is seeing steady demand

For years, Angelo Bianco, a Florida developer, drove past the massive, wooded IBM corporate campus on Interstate 95 in Boca Raton, Florida, without paying much attention. But his interest was piqued when a real estate agent told him the property was for sale.

IBM designed the remote 550-acre site in the 1960s because it “didn’t want people in their secret development lab,” Mr. Bianco said. It was there that engineers produced the first personal computer, as well as the prototype for the first smartphone.

In its heyday, nearly 10,000 employees worked at the complex, but after IBM moved its operations to Raleigh, NC and eventually sold the property in 1996, the site became something of a white elephant. A series of owners struggled to successfully rezone it, selling tracts and eventually renaming it the Boca Raton Innovation Campus.

The site was acquired five years ago for a reported $179 million by a group of buyers led by the CP Group, a commercial real estate firm where Mr. Bianco serves as a managing partner. After studying contemporary corporate campuses from Apple, Google and Nike, Mr. Bianco said, the company decided to open the campus to the community instead of hiding it from view.

As hybrid work models continue to evolve and transform the workplace, commercial real estate owners have been rethinking what corporate headquarters should look like – even in a market like South Florida, which has proven to be more insulated from the office space decline that has hampered other companies . metropolitan areas such as New York and San Francisco.

According to Moody’s Analytics, the office vacancy rate nationwide was 19 percent in the third quarter of this year, close to the 1991 record. Cities with a lot of new construction, such as Dallas and Austin, Texas, showed higher vacancy rates. But Miami is one of the markets where vacancies fell.

After an initial rush to the suburbs during the height of the pandemic, Florida renters are once again looking for space downtown and in central office districts, said Jonathan Kingsley, vice chairman of Colliers International, a real estate consultancy. And they’re looking for a more robust experience as they try to lure employees back to the office.

“They need fitness centers or wellness areas, access to restaurants and maybe some shopping,” Mr Kingsley said.

But building in new amenities that will appeal to current workers is an expensive prospect for developers, who also face restrictions on access to public transportation and continued competition for space, especially in the South Florida market.

Hedge funds and technology companies that have moved to or expanded into the area during the pandemic have snapped up real estate. Billionaire Kenneth C. Griffin turned heads with his purchase of office buildings in Palm Beach and Miami’s trendy Brickell neighborhood, where he plans to build a skyscraper that will house Citadel, his hedge fund.

The rush over the past three years has leveled off, but demand has remained relatively stable in the three counties that make up South Florida: Miami-Dade, Broward and Palm Beach. As of early 2023, newcomer tenants account for 21 percent of the 3.8 million square feet of active deals in Miami-Dade, said Tere Blanca, CEO of Blanca CRE. Rents have remained stable and have increased in some of the hottest neighborhoods, like Brickell.

A key reason for the continued strength, Ms Blanca said, is that the region is attracting a wide range of industries, rather than being dependent on one or two sectors. Typically, companies open regional headquarters or smaller offices, some hoping to tap into the wave of new talent that has migrated to the area.

Another draw is the investments from well-capitalized owners focused on building community by creating what they call the “renter experience,” with updated amenities and events that often involve food trucks or 5K races.

The one-story Y-shaped office building in the heart of the Boca Raton Innovation Campus was designed by Marcel Breuer and Robert F. Gatje and is the largest in the state. To update it, CP Group added skylights, courtyards, entrances and amenities such as a supermarket, beauty salon, coffee shops and art exhibitions, which are open to the public, as well as the walking paths and lake in the center of the property.

“We want people, when they come here, to feel like they are getting more than just an office,” Mr. Bianco said. “People no longer want to work in an environment that is separated from the world. They want energy and excitement and things like that near them.”

Office space, like its retail counterpart, can thrive when it’s relevant and in a good location, says Scott Sherman, founder and principal of Torose Equities, a Miami-based developer. In August, Torose closed on a 222,000-square-foot office building built in 1972 in pedestrian-friendly Coral Gables, Florida, for a reported $54.4 million. His company plans to modernize the building with new amenities to attract tenants.

“More and more companies are saying you have to come to the office three, four, five days a week,” Sherman said. “The nicer the office environment is, the easier it is to get people back in.”

When Andrew B. Hellinger, co-founder and principal of Urban-X Group, a developer in Coral Gables, began construction in 2018 on River Landing, a shopping center, rental apartments and a wharf along the Miami River, the top floor had promised to AMC Entertainment. Then came the pandemic and the theater chain, in dire financial straits, was happy to give up the space.

Instead, Mr. Hellinger and his partners turned the three floors atop the complex into 150,000 square feet of office space. Now, he said, the offices are 75 percent leased.

“The market is starting to understand that work is not just a place to go to the office and leave,” Mr. Hellinger said. Even for those who commute, “You might want to hang out and not fight traffic.”

Commuting challenges are one of the key reasons more and more companies are prioritizing proximity to public transport, Colliers’ Mr Kingsley said. Potential tenants want to “make it easy for employees, make them want to come to work,” he said. For example, a British-based design firm looking to open an office in South Florida clearly defined what it needs: a “cool, funky space” close to public transportation.

Florida’s recently expanded high-speed rail line, called Brightline, is a “game-changer,” said Andrea J. Heuson, professor of finance and academic director of real estate programs at Miami Herbert Business School. The train service will make the northern part of South Florida much more accessible, where rental prices are lower, which she said could ultimately hurt Miami-Dade in favor of Broward and Palm Beach.

Mr. Bianco’s highest price per square foot in his Boca Raton building represents about half of the South’s highest rents. The property’s proximity to Tri-Rail’s Boca Raton station, the busiest stop on the 70-mile commuter rail line, is a draw he hopes will make the campus even more attractive.

The Boca Raton City Council recently voted to rezone the property so his company can move forward with plans to add 1,250 apartments, a grocery store, restaurants, a hotel and a performance venue.

As Mr. Bianco guides potential tenants through the building and shows off what is said to be the longest hallway in the world — at 1,000 feet high — he points to a collection of photos from the dawn of the computer revolution.

“I tell them that when IBM was here, it was like having Google and Apple in the same company,” Mr. Bianco said. Maybe that lineage is part of the appeal. The building is now 90 percent leased, compared to 70 percent when his group took ownership.