Palm Beach County Office MarketView Q1 2016

MARKETVIEW

While the local economy edges up,

office space has gotten pricier

Palm Beach County Office, Q1 2016

LEASING ACTIVITY

Market activity remained steady, keeping net

absorption positive and vacancy stable. With no new

office projects currently in development, net absorption should remain positive and the overall

vacancy should continue to decline. New leases and

renewals of tenants under 10,000 sq. ft. were major contributors to Q1 2016 performance.

Vacancy in Palm Beach County came in at 18.9% for Q1 2016, declining 200 basis points (bps) year-over-

year. The highest vacancy rate was found in Delray

Beach at 46.5%, while the lowest rate was recorded in

Q1 2016 CBRE Research © 2016 CBRE, Inc. | 1

Total Vacancy 18.9%

*Arrows indicate change from previous year.

Lease Rate $18.38 PSF

Net Absorption 19,000 SF

Completions 0 SF

• Stable economic conditions have contributed to

increases in leasing activity in the market.

• Following the lead of the residential market, developers will need to tear down and redevelop underperforming properties in order to achieve the highest and best use of commercial sites.

• The Palm Beach County market posts 10 consecutive quarters of rent gains.

• Landlords and investors are optimistic as

fundamentals continue to improve at a steady pace.

15

16

17

18

19

20

0

7

14

21

28

Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q1 2016

Asking Rate ($/SF) Vacancy (%) Vacancy Rate Average Asking Lease Rate

Figure 1: Total Vacancy -vs- Average Direct Asking Lease Rate (NNN)

Source: CBRE Research, Q1 2016.

MARKETVIEW


PALM BEACH COUNTY OFFICE

Submarket

Total Inventory

(SF)

Direct Vacancy

(%)

Total Vacancy

( %)

Q1 2016 Net Absorption

(SF)

2016 YTD Net Absorption

(SF)

Under Construction

(SF)

Avg. Asking Lease Rate

($/SF/NNN)

Boca Raton 11,331,429 17.4 17.4 (23,604) (23,604) 0 18.76

Delray Beach 1,410,872 46.5 46.5 8,105 8,105 0 13.08

Boynton Beach 448,063 29.3 29.3 541 541 0 15.33

Lake Worth 396,353 8.3 8.3 7,692 7,692 0 -

West Palm Beach 5,534,311 19.1 19.1 28,305 28,305 0 19.07

Royal Palm Beach 296,578 6.3 6.3 0 0 0 19.02

Palm Beach 541,306 13.6 13.6 (7,354) (7,354) 0 41.95

North Palm Beach 2,688,428 12.2 12.2 4,231 4,231 0 18.91

Jupiter 531,540 21.0 21.0 1,509 1,509 0 21.04

Total Palm Beach County 23,178,880 18.9 18.9 19,425 19,425 0 18.38

Class A 10,266,283 14.2 14.2 (739) (739) 0 23.76

Class B 11,329,642 24.1 24.1 22,315 22,315 0 15.03

Class C 1,582,955 12.0 12.0 (2,151) (2,151) 0 13.19

*Downtown West Palm Beach 2,761,847 13.8 14.0 (8,267) (8,267) 0 25.81


Submarket Property Tenant Transaction (SF)

West Palm Beach The Dep Building Confidential* 28,792

North Palm Beach Golden Bear Nicklaus Golf Equipment** 19,998

Boca Raton North 40 Cross Country** 15,000

Boca Raton Boca Raton Innovation Campus Lexis Nexis** 10,319

Figure 3: Significant Q1 2015 Lease Transactions

*Denotes an renewal/expansion. ** Denotes a renewal. Source: CBRE Research, Q1 2016.

Figure 2 : Market Statistics

the submarket of Royal Palm Beach at 6.3%. Overall

availability, including sublease space, came in at 23.3%, declining 280 bps year-over-year. The office

market was off to a slow start in Q1 2016, posting

19,425 sq. ft. of net absorption. However, the Palm Beach office market has exhibited consistent quarter-

over-quarter improvement in leasing fundamentals

over the past year and the market continues to gradually tighten, putting upward pressure on rental

rates. Landlords are taking advantage of limited

supply in sought after locations and traditional

concessions, such as free rent, generous

improvement allowances and free garage parking are almost non-existent.

ECONOMIC INFLUENCE

According to the Florida Department of Economic

Opportunity, Florida businesses had the highest private-sector job growth rate of the 10 most

populous states in February. This is the 14th

consecutive month that Florida has led the

MARKETVIEW

nation’s largest states in job creation. Florida’s

private-sector job growth rate of 3.4% is also significantly higher than the nation’s, which is at

2.2%. Major trends including job growth, population

growth and tourism, fueled demand for commercial real estate in Palm Beach County. Steady decline in

vacancy corroborates a tightening market with

property values and lease rates rising. In February 2016, Palm Beach County experienced year-over-year

growth in the following industries: professional/

business services added 3,600 jobs and professional/technical services added 1,300 jobs. The

county’s unemployment rate is 4.5%, a 50 bps

decrease from the February 2015 rate of 5.0%, according to the Bureau of Labor Statistics.

DEVELOPMENT

GEO Corrections Holdings Inc. purchased 4.8 acres

located just west of I-95 and Yamato Road in the Boca Raton submarket for $9.9 million. The site is

intended for the future development of the

company’s headquarters office, which will total 105,000 sq. ft. The company is currently in 113,000

sq. ft. at One Park Place, also located in Boca Raton.

In the Downtown West Palm Beach submarket, the Related Companies has plans to build a 30-story

Class A office building totaling 300,000 sq. ft. on

Lakeview Avenue. Other planned office projects in the Downtown West Palm Beach submarket include:

One West Palm totaling 371,000 sq. ft., Transit Village

totaling 300,000 sq. ft. and The Cosmopolitan totaling 125,000 sq. ft.

INVESTMENT SALES ACTIVITY

Demand for office investments was fueled by low

interest and capitalization rates, as well as the potential for rental growth. Opportunistic buyers are

actively seeking land and existing buildings. In Q1

2016, six properties totaling 989,911 sq. ft. traded for nearly $160 million or $159 per sq. ft. A noteworthy

transaction that occurred in Q1 2016 was the sale of

Northbridge Tower, located in the Downtown West Palm Beach submarket. The Class A asset traded for

$68.2 million, or $236 price sq. ft., and was 71%

leased at the time of sale. The buyer



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10

15

20

25

Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q1 2016

Class A Class B Class CAsking Lease Rate ($)

(400)

(200)

0

200

400

600

800

2011 2012 2013 2014 2015 2016 YTD

Figure 5: Net Absorption

Figure 4: Average Direct Asking Lease Rate (NNN)



(000’s SF)

acquired the asset at a cost below that of

competing product, which will allow them to reposition the property in order to realize a

greater return in the improving market.

OUTLOOK

Compared to other areas across South Florida, Palm Beach County offers one of the best blends

of labor quality, cost, and availability. The

region’s primary and comparative locational strength is for advanced and sophisticated office

operations that require a well-educated and

technically advanced workforce. The office market continues to do well because there is

limited supply of available office space. While the

office market statistics continue to improve, it is anticipated that Palm Beach County will continue

to demonstrate positive momentum in 2016.

MARKETVIEW

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

CONTACTS

Endria Maiorano South Florida Team Lead +1 561 393 1642 [email protected] Mary Jo Eaton President Florida & Latin America +1 305 428 6329 [email protected] Quinn Eddins Director, Research and Analysis +1 305 428 6325 [email protected]

CBRE Boca Raton 5100 Town Center Circle Tower II, Suite 600 Boca Raton, FL 33486


Market Coverage: Includes all multi-tenant office

buildings 30,000 sq. ft. and greater in size in Palm Beach

County. Excludes: office condo, medical and government

buildings.

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway.

Submarket Property Buyer Seller Building (SF) $ Sale Price

West Palm Beach Northbridge Tower Greenfield Partners/Crocker Partners Gaedeke Holdings 293,464 68,240,000

North Palm Beach Corporate Center at the Gardens

Alchemy Properties/Breakers Capital Partners Lexington Realty Trust 125,000 30,050,000

West Palm Beach Forum Crimson Peak, LLC Panther Real Estate Partners 300,000 20,500,000

Boca Raton Atrium at Broken Sound IMC Realty Group DSN Holdings 135,297 17,050,000

Boca Raton Grove Center The Triad Group KAS Grove 49,770 11,550,000

Figure 6 : Significant Q1 2016 Sale Transactions


Palm Beach County Office MarketView Q1 2016

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