The South Florida office market continues to outperform the broader nation in terms of rent gains with Miami, Palm Beach and Fort Lauderdale posting annual rent gains of 7.3%, 6.6% and 5.3% respectively so far in July. Those average gains are well above the national index for office rent gains of around 1%. Office space availability also remains under 14% across South Florida, below the more than 16% average office availability nationally.
Miami and Fort Lauderdale have historically benefitted from limited office availability relative to the national average since 2010 and 2016 respectively and Palm Beach since 2021. Now, the reduced level of office supply additions coupled with a lower share of telework and several sizable corporate relocations in the past few years have helped cement this relative market tightness and contribute to its expected outperformance.
Additionally, a normalization in post-pandemic office use appears to have South Florida office workers settling into a three-day in-office work week, according to research by the National Bureau of Economic Research, helping to further stabilize office occupancy.
This relative strength in office fundamentals is expected to help buoy market values across South Florida, with Miami and Palm Beach representing just a handful of markets that are forecasting office value gains through 2024 relative to 2019 levels. Miami and Palm Beach office values are expected to rise over 1.9% and 3.2% respectively from pre-pandemic levels, while Fort Lauderdale is forecast to see a decline in property value of just around 3.6%, well above the over 16% average decline seen for the 54 largest U.S. markets.
Additional rent gains and limited occupancy declines in coming years are expected to drive this outperformance in office performance, although different buildings within the office districts in these markets are expected to perform at different levels.
Miami has historically had higher office space availability in its downtown. However, Fort Lauderdale and West Palm Beach have contributed to the region's recent increase in downtown office availability since 2019. An increase in downtown office supply of over 3% relative to a 2% rise in suburban office inventory since 2016, coupled with a pandemic-induced slowdown in downtown leasing has had the biggest impact on the Fort Lauderdale and Palm Beach office markets.
Looking ahead, downtown office availability is expected to remain elevated across South Florida as lower leasing activity combines with increased inventory. The downtown office inventory is expected to increase by over 6% through 2024, while suburban office inventory is only expected to expand by a meager 0.7%. This is expected to result in near-term rent growth outperformance for Suburban offices with lower supply pressure, though rent gains are expected to continue to slow across all district types through at least 2026.
The office space availability gap, or the difference between downtown and suburban space availability, remains widest in Fort Lauderdale and Palm Beach, well above pre-pandemic levels. Suburban space availability in Fort Lauderdale and Palm Beach stands at 12% and 8% respectively, while downtown space availability has risen to 16% across both markets as of the second quarter of 2023. This is in contrast to the lower pre-pandemic space availability of downtown office space in Fort Lauderdale and Palm Beach averaging 11% and 13% respectively from 2016 through 2019.
Unlike these markets, the gap between suburban and downtown space availability in Miami has not changed significantly. Space availability in Miami’s downtown has contracted from an average of over 17% from 2016 through 2019 down to just over 16% as of the second quarter of 2023. While suburban availability has risen slightly from 8% to 9% over the same period.
Both Miami and Palm Beach have significant forecast inventory additions to their downtown office supplies of over 9% of existing inventory through 2024, although Miami’s downtown is expected to fare relatively better as tenant demand for new high-quality space in Brickell and Downtown Miami remains healthy. Miami is expected to continue to see slower, yet positive rent gains across districts through 2024, while increased space competition in downtown Palm Beach is expected to result in some rent losses there.
On the other hand, a contraction in office demand across all districts in Fort Lauderdale is expected to result in the office market underperforming through 2024. That said, office space in all three of the South Florida markets is expected to outperform the national index across the majority of performance metrics in the near term.
