Institutional Investors Discover Coral Gables as Vacancy Shrinks
March 23, 2016
Coral Gables led the region in office transactions during the final months of 2015, with three major trades bringing an eye-catching $236 million. The city long known for its Mediterranean architecture and bridal shops has hit the investor radar screen, luring financial giants from around the globe.
“You’ve got institutional investors coming in and buying Class A and B office buildings, looking to invest in them to reposition them,” said Diana Parker, senior vice president at CBRE Inc. in Miami. “Within the last 14 months, 800,000 square feet has traded.”
That’s more than a tenth of the city’s 7 million square feet of office space. South Florida’s largest office transaction was in Coral Gables last quarter, CBRE reported. The market kicked off a flurry of activity at year’s end with the $119 million sale of Alhambra, a downtown Class A office complex. A Chicago- based fund tied to Deutsche Asset & Wealth Management paid about $363 per square foot for the dual office tower property.
The seller was an affiliate of USAA Real Estate Co., which purchased the Alhambra for $72.3 million in 2004, a 65 percent gain by the time of the December sale.
Less than two weeks later, Spanish investment group MDR Americana LLC pocketed the Alhambra International Center down the street at 2 Alhambra Plaza for $34 million, or about $164 per square foot. The 13-floor office building sold for half that in 2004.
Investors didn’t stop there.
In a third deal, Atlanta-based Prudential Real Estate Investors, the real estate investment arm of Prudential Financial Inc., dropped $83 million on 355 Alhambra, a nearly 500,000-square- foot office property at 355 Alhambra Circle.
Brokers say the acquisitions are typically followed by multimillion-dollar renovations to support a rent increase. Average rental rates in Coral Gables jumped to $37 per square foot in the last quarter of 2015, a 2.4 percent increase from the first quarter, according to JLL’s latest market report. The office sector ranked in the top five most expensive Miami-Dade County markets, which included Aventura and North Miami at $43.50, Miami’s Brickell financial district at $42, downtown Miami at $37.20 and Miami Beach at $36.50.
The high rates are also a factor in Coral Gables’ low vacancy rate and lack of new supply.
Job growth in the professional services sector increased demand for space last year, pushing the average vacancy rate down to 12.5 percent across Miami- Dade, CBRE reported. In Coral Gables, the rate dropped to a low 9.2 percent across all office classes.
“The Coral Gables market is one of the lowest in vacancy,” said Maggie Kurtz, senior vice president at CBRE. “It’s leasing up quicker than most of the markets.”
International food distributor Quirch Foods Co. signed a 30,000-square- foot lease downtown for its new corporate headquarters last year. The company’s decision to relocate its 155-employee team to 2701 S. Le Jeune Road was prompted by its desire to find a location near major transportation hubs, dining and shopping, reported commercial real estate firm Savills Studley.
Last year, AMC Networks international expanded to 16,424 square feet at 2020 Ponce De Leon Blvd. Pipeline Workspaces chose the city for its third co-working location, leasing 14,000 square feet at 95 Merrick Way. Parker said both Geico and the consulting firm Retail Outsource Cos. also moved into the market, leasing space in the 10,000-square- foot range.
“It screams ‘absolute best place to have a business,’ ” said Leonardo H. Da Silva, a partner with Alvarez, Carbonell, Feltman & Da Silva. The law firm at 75 Valencia Ave. sits two blocks south of the city’s famous Miracle Mile retail corridor.
Downtown Miami “is too stuffy. In Coconut Grove, you can’t walk anywhere,” Da Silva said. “In Coral Gables, every other door is a restaurant.”
And for businesses seeking to escape the stifling gridlock in downtown Miami and neighboring Brickell, Coral Gables is a breath of fresh air.
But in terms of new construction, Parker said, “Office has been the stepchild.”
Savills Studley reports large office spaces are becoming increasingly difficult to find. While more options exist for smaller space in the 10,000- to 20,000-square-foot range, tenants looking for a block of 25,000 square feet or more have only six buildings to choose from.
“We’re now reaching that famous tipping point where it makes sense for developers to consider office development in urban and suburban marketplaces of Miami,” Parker said.
Developer Camilo Lopez deems Coral Gables “the most established market in South Florida.” He is president and managing director of The Solution Group, a Miami-based company developing a 16-story office-condo at 1200 Ponce De Leon Blvd.
The developer is demolishing an existing building at the site and expects to go vertical in about a month, Lopez said.
Ofizzina, a planned 100,000-square- foot building, is 65 percent pre-sold, mostly to financial services tenants. Buyers have come from Switzerland and England to Latin American countries, Lopez said.
“They like to own their spaces,” he said of his future tenants. “They don’t want to rent.” While Ofizzina is the Solution Group’s first office project, Lopez and his team plan on launching a second one soon.
Veteran developer Armando Codina has a project underway at 2020 Salzedo St. that will bring 53,452 square feet of office space to a six-story building as part of a mixed-use complex. Codina will use half of the space for his corporate headquarters.
“There is a tremendous need for new construction,” said Tere Blanca, CEO of Blanca Commercial Real Estate.
Another 300,000 square feet of office space hangs in the pipeline in Agave Ponce’s Mediterranean Village, a proposed $500 million mixed-use development. But no construction or delivery date has been confirmed for the office portion of that project, Blanca said.
With vacancy rates pushing toward single digits, businesses may struggle to find room to grow.