The national office market may be emerging from a deep freeze, but the heat is on in Miami where a top-dollar office deal is showcasing the region's appeal among institutional investors.
The city's standing as one of the strongest office markets in the United States was affirmed through the $443 million deal for 701 Brickell Ave., a waterfront tower that commanded the second-highest price ever paid for an office property in Florida's history, according to brokerage JLL and CoStar data. Nuveen Real Estate, the property's longtime landlord, closed the all-cash deal with Florida-based investment firm Morning Calm Management earlier this month for a price tag that shakes out to roughly $646 per square foot.
By comparison, other office properties that have traded hands in and around the popular Brickell neighborhood have averaged about $500 per square foot, according to CoStar data. That figure has climbed in recent years as the greater Miami region has outperformed other national markets, bolstered by a surge of tech and financial services firms that have relocated or opened outposts in the area.
A Miami-based JLL team represented the seller and procured the buyer, with national support headed by JLL Senior Managing Director Mike McDonald. The deal is a notable return for McDonald, a former Cushman & Wakefield broker based in Texas who was temporarily banned from conducting real estate deals as part of a noncompete agreement with his former employer, as previously reported by CoStar News.
Nuveen Real Estate, formerly TIAA Real Estate, acquired the nearly 685,280-square-foot building in late 2002 for $172 million. In the more than two decades since, and especially since the pandemic's outbreak, Miami has evolved into a business capital as its economy pivoted from one focused on leisure and tourism to one able to attract some of the biggest names in corporate America.
Miami hot spot
The Brickell area, in particular, has been a hot spot for companies looking to create or build a presence in the South Florida area. It has been one of the most sought-after neighborhoods in terms of some of the region's best-in-class office properties.
At 701 Brickell Ave., for example, the tenant lineup includes some of the biggest names in the financial and professional services industries. Companies such as Bank of America and its offshoot Merrill, law firm Holland & Knight, global finance and insurance company AIG, and investment giant Apollo Global Management, among others, lease space in the 33-story tower that's about 90% occupied, according to CoStar data.
Amid tenants' widespread shift to the newest and nicest office buildings, Nuveen invested about $30 million to renovate the Brickell Avenue tower, which has been able to command some of the highest rents in the Miami area. Rates there average about $127 per square foot, according to CoStar, a hefty premium compared to the more than $86 a square foot for other buildings in the Brickell neighborhood.
To be clear, some cracks are beginning to emerge in Miami's flashy facade, many of which have formed as a result of a burst of new construction in recent years. Development starts hit a peak in mid-2023, according to CoStar analysis, and nearly all of the roughly 3.6 million square feet now moving through the region's construction pipeline is focused on the highest end of the quality spectrum.
Developers completed more than 220,000 square feet last year, and a historic high of about 1.2 million square feet is expected to be added to Miami's inventory before the end of this year.
All of that new space landed right when the number of corporate relocations began to slow and leasing activity hiccuped.
Miami's net absorption, which measures the change in the amount of occupied space, has slowed by nearly 400,000 square feet over the past year, as leasing activity fell by about 25% between 2022 and 2023.
Yet for investors such as Morning Calm, the city's strong demand drivers and ability to outrun the rest of the country in terms of both filling space and generating rent growth was enough to look past any shorter-term speed bumps. The city's current vacancy rate of about 8.3% is far below the national average of nearly 14%, according to CoStar data, and companies such as JPMorgan Chase, Apple and Amazon have headlined recent expansion news.
What's more, it was able to land the Brickell Avenue building at a relative discount compared to the more than $500 million price tag it was expected to command when Nuveen listed the building earlier this year.
For the record
A Miami-based JLL Capital Markets team including Manny de Zarraga, Matt McCormack, Ike Ojala and Hermen Rodriguez, with national advisory help from the brokerage's Mike McDonald, represented Nuveen Real Estate in the deal with Morning Calm Management.