In the first three years of South Florida’s post-recession recovery, nearly all of the new office construction in South Florida was concentrated in Miami. Scattered smaller properties popped up in Broward and Palm Beach Counties between 2012 and 2014. During this period the amount of new office construction in Dade County was more than four times greater than the combined total of 100,000 SF built in Broward and Palm Beach Counties.
Commercial Development by County
Lackluster job growth, ample excess space (particularly in Palm Beach County) and a very cautious approach among lenders curbed the development pipeline. Construction has picked up in the last two years in Broward County with more than 500,000 SF delivered. However, development activity in Palm Beach County has remained negligible. This dynamic could be changing though; as some of Palm Beach’s trophy buildings are achieving high levels of occupancy, more local developers in West Palm Beach are poised to forge ahead with the first office construction in years.
Two of the biggest developments - both in Downtown’s emerging Quadrille Business District mix together residential, retail and hospitality product. Developer Jeff Greene, for example, wants to start development of One West Palm on Quadrille Boulevard. The mixed-use project would have two 30-story towers. One would offer 340,000 SF of office space; the other would include 209 hotel rooms and 84 condos. Both buildings will have restaurants and shops on lower floors. Mr. Greene hopes to start construction in the summer or fall of 2016.
The development of these properties would help alleviate potential pressure to accommodate the flurry of hedge funds that have set up operations in the area. According to The Real Deal, a total of 60 to 70 private equity and hedge fund companies have established offices in the county in the last three to four years. Mr. Greene has said he anticipates more of these firms to move into the area, and that One West Palm is a logical destination for these tenants.
These developments will ultimately raise the standards for new office space in this submarket. As a result, owners trying to lease space in existing properties will have to consider making major improvements to their facilities. If they don’t, these landlords will face losing tenants to newer buildings that offer the latest amenities and building technology with generally much more efficient space layouts. Tenants leasing space in this next generation of office buildings will pay a premium and their base rent will surely increase. On the other hand, in addition to gaining intangibles such as a prestigious office, many will be able to reduce the amount of space they lease as they relocate from older inefficiently configured buildings to new construction.