🗄 Mediocre Office Revival

Second-class buildings are trending. The chic ones are full.

Happy Friday Highest & Best! Today, we sprint through the offices as we explore the South Florida real estate week that was:

🏢 Second-class office buildings are having a moment

👨‍⚕️ The New York doctors are in…Florida

🏢 Who will fill Miami’s next luxury office?

👵 Not your grandma’s Boca condo

Let’s get to it!

The Rise of Mediocre Office Space

There’s a saying you hear a lot these days in the world of office leasing:

“Flight to quality.”

It sounds like a plane trip to some remote ranch but, really, it’s this:

Companies that lease office space in this hyper work-from-home era are choosing the newest, prettiest buildings, with the coolest amenities, and ignoring most everything else.

Well, in Palm Beach County that flight-to-quality took a detour.

Rents for “Class B” office buildings— older, with few amenities and in need of some sprucing — jumped 10.6% in the county last year, according to a report by brokerage CBRE. Meanwhile, rents for Class A (aka “quality”) buildings were unchanged from the previous year.

It’s quite the deviation from “the usual trends,” CBRE said. And there’s a simple reason why tenants in the area— which brands itself as ‘Wall Street South’ — are clamoring for lesser buildings and pushing up rents:

The best properties are already full.

“Quality space options in the market remain limited as many of the premier buildings in the market leased up in 2021 and 2022,” the report says.

Demand for Class B buildings in Palm Beach County is jacking up their rents past historical averages. Over the past ten years, rents for Class B properties grew an annual average of only 4.5%.

OK, but: Developers are building 701,400 square feet of new office space in the county, all of which should be complete within 24 months, CBRE said.

The brokerage is cautioning that the new, premium space might not lease as easily as it did two years ago, given “dwindling new-to-market activity” — meaning, it’s seeing fewer corporate migrations from elsewhere.

The office space in ‘Office Space’

New York University Expands…in West Palm Beach

Know who is migrating to Florida from elsewhere?

NYU doctors.

This week, New York University purchased a four-story office building in West Palm Beach for $33 million, according to real estate website Vizzda. The property, at 324 Datura St., comes with filed plans to demolish the existing structure and erect a seven-story medical office with 181,000 square feet in its place.

NYU Langone Health — a major hospital and health care system in New York City — is looking to expand its presence in West Palm Beach, at a time when many of Wall Street’s bold name financial firms (and their well-heeled employees) are moving to or opening offices in the neighborhood.

NYU Langone set up an outpost in West Palm in 2017, and has been looking in recent years to expand into its own dedicated medical tower, the Palm Beach Post reported last year.

The seller of the Datura Street property, Morning Calm Management, was probably happy to help them. Morning Calm bought the building in 2021 for $10.65 million — which means the sale this week was more than three times as much.

Proposed medical tower for NYU Langone Health in West Palm Beach

Leasing Miami’s Next Luxury Office Building  

Entrance to 848 Brickell (Photo: Key International)

Picture a day at the office that includes a game of Padel, an outdoor team meeting, and a coffee break on your firm’s private terrace, perched high above Miami’s waterways.

That’s part of the pitch that brokers are making to prospective tenants of 848 Brickell, a planned 750,000-square-foot office tower in Miami’s financial district, as leasing gets underway.

Brokerage JLL was picked to conduct the search for tenants at the 51-story tower, to be developed by Key International and Sterling Bay, and expected to break ground later this year.

848 Brickell will rise in a neighborhood that’s drawn a powerhouse list of corporate tenants from other cities in recent years, including investment firms Citadel and Thoma Bravo, and law firm Kirkland & Ellis. That makes the net for future tenants easier to cast, brokers say.

“You look at their competitors and others in those fields who aren’t here yet,” said Steven Hurwitz, a managing director in JLL’s Miami office, who is co-leading the team of agents seeking to lease the new tower.

“It’s not been difficult to get meetings to show people what’s going on in South Florida and, specifically, on Brickell, which is one of the hottest markets in the country,” he said.

Office rents in the Brickell neighborhood are the highest in Miami, with an average asking price of $96.25 per square foot for Class A space, according to a brokerage CBRE. While corporate migration to Florida slowed last year from its 2021 and 2022 exuberance, Miami’s office tenants — in contrast to the rest of the U.S. — still leased more space last year than they vacated.

848 Brickell is promising a “hospitality-driven corporate experience,” as Hurwitz described it — basically offering firms a host of amenities, like a fitness center, Padel court, and outdoor lounges, that will entice employees to come into (and stay at) work.

“If you’re a major finance firm coming down from Chicago or New York looking for a couple hundred thousand square feet,” Hurwitz said, “And your decision makers and your guests can get off on a floor with floor-to-ceiling glass views, and walk outside for a cup of coffee at a meeting table, on a terrace, on the 51st floor — that’s not an experience I’ve heard of in any other major market.”

A terrace at 848 Brickell (Photo: Key International)

Not Your Grandma’s Boca Condo

Rendering of rooftop terrace at Glass House (Photo: wearevisuals)

A planned condo building in Boca Raton is testing the upper price limits of the market.

Glass House Boca Raton, a not-yet-built 10-story luxury development, will begin sales this month for its 28 condo units, according to a press statement by the developer.

Prices for the apartments start at $2.5 million — or 66% more than the median price of a luxury condo in Boca at the end of last year, according to data from appraiser Miller Samuel. The most expensive units will list for $6.9 million.

Small price to pay for what the developer is calling “the first modern glass building in Downtown Boca Raton”?

Apartments will range from 2,550 square feet to 3,990 square feet, and inlcude floor-to-ceiling windows, private terraces with built-in gas grills and, in some apartments, private elevators. There’ll be a pool and fire pit on the roof, a doorman and valet in the lobby, and a resident lounge that will offer “demitasse,” which — I had to Google it— appears to mean ‘small cups of coffee.’

Construction is expected to start in early 2025, and be complete the following year.

Palm Beach County— where Boca is located and where the average income of newcomers in 2020-21 was $242,000— is seeing an uptick of luxury condos for sale. Listings for condos priced between $3 million and $4.99 million jumped 44% to 36 in January from the same month a year ago, according to a report this week by Miller Samuel. Condos priced at or above $5 million rose 23%, with 16 listed for sale last month.

Oh and by the way: Jonathan Miller’s data on this — and many national real estate matters— can be seen in his weekly Housing Notes newsletter. Check it out!

That’s it for today!

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