Esperante Building at 222 Lakeview in West Palm Beach (Philippe Jenney)
Palm Beach’s office market is slowly heating up, piggybacking on activity in Miami-Dade.
“It’s a factor of the South Florida market. Miami tends to lead the way and then Broward follows,” said Rick Miller, managing partner of Boca Raton-based Miller Partners. “Palm Beach, being the upper portion of the South Florida area, typically trails the progress of Broward and Miami, the ‘capital’ of Latin America.”
Palm Beach has nearly 23.2 million square feet of office space. About 23 percent of that—or 5.4 million square feet—is vacant, according to CBRE Group Inc.
There’s room for growth, analysts say, but the market’s headed in the right direction, leasing an additional 300,000 square feet in the last year.
“We’ve seen positive trends in the last 12 months,” said West Palm Beach broker Kevin McCarthy, vice president of Jones Lang LaSalle. “The consensus is that this will continue—not in a dramatic way but in a slow gradual way.”
Multiple large deals toward the end of last year lowered vacancy rates and boosted absorption.
In the fourth quarter, for instance, law firm Cole, Scott & Kissane leased 50,000 square feet at the Esperante Corporate Center, which changed hands in a $71 million sale during that period. That deal was the first sale in the central business district since CityPlace Tower traded in 2011, according to Jones Lang LaSalle.
The last three months of 2103 saw other major leases, including Frisco, Texas-based Conifer Revenue Cycle Solutions LLC’s contract for 97,762 square feet at Boca Corporate Center and Campus. That deal was the largest lease agreement in the county in 2013.
The corporate center secured another major tenant when Boca Raton-based Tyco Integrated Security, a provider of commercial security systems, leased 72,234 square feet for its 280 employees.
The transactions energized the office sector, pushing vacancy rates down to 20 percent at the start of the new year from 22 percent a year earlier.
“That’s a nice healthy decline,” said Ken Krasnow, CBRE’s South Florida managing director. “Companies are feeling better about their business and the economy. We’re definitely seeing more capital commitments, with companies willing to extend their leases or move to higher quality space. It’s a sign of an improving economy, but it’s also more of a sign of improving confidence in the market.”
And as they find their way out of the recession, businesses are moving to plusher offices in what brokers refer to as a flight to quality.
Tenants scooped up nearly 210,000 square feet of Class A office space in the last year, boosting investor interest in some of the area’s most high-end buildings.
And others expanded their operations, signing larger deals in a market where the typical lease is for 3,000 to 5,000 square feet.
“The monetary flow has been positive and strong,” Miller said. “That’s not the case with all assets but certainly with the trophy assets. And that’s where we’re seeing the trades happen. There’s a lot of capital that is still out there looking for trophies like Esperante. Those assets have traded very well in 2013, and we’ll see that continuing in 2014 because the momentum has picked up.”
As real estate deals improve in the urban core, they’re also trickling to Boca Raton, Palm Beach Gardens and other cities where inventory has started to shrink, said Kevin Probel, general manager and vice president at Jones Lang LaSalle.
In western Boca Raton, for instance, tenants absorbed 4.2 percent of Class A office space last year, thanks in part to Kayne Anderson Real Estate Advisors LLC, the private equity real estate practice of Kayne Anderson Capital Advisors, which occupied more than 12,000 square feet at One Town Center.
“I think that’s going to be a continued trend,” CBRE’s Krasnow said. This year, “you’re going to see a little more spreading of good fortune in the market.”