Marc Miller.

Rents in sections of MIami-Dade County where law firms are frequently based have risen to record highs as quality space options have declined, according to a market report from commercial real estate service JLL.

While rent rate growth has leveled off downtown and in Coral Gables, it has not on Brickell, where vacancy is low and rates have continued to increase.  Nevertheless, rent rates have increased more slowly than in the past, as pricing has come close to a tipping point, the report said.

Rent for quality space on Brickell is approaching $50 per square foot, according to the report. But concessions such as free rent or tenant improvement allowances have continued to grow. And as market growth has slowed, some landlords have held off on rent increases.

Nevertheless, Brickell is still a coveted location because the buildings are newer and have more nearby amenities.

“Brickell has seen rates skyrocket — since 2014, they've gone up $7 per square foot for prime product,” said Marc Miller, research manager for JLL in Florida, who worked on the report. “On Brickell, it's about $53 per square foot. Those are the typical buildings that prominent law firms will be located in.”

Large law firm relocations, such as the downsizing by Akerman into 111,000 square feet at Brickell City Centre, have helped new mixed-use development in the Brickell area outperform the general Miami market and left behind unoccupied traditional office space in downtown Miami. Rents are therefore expected to hover at current levels since no new construction is expected to begin over the short term and large blocks of unoccupied space in downtown and Coral Gables remain.

With new buildings available in Coral Gables, landlords of existing buildings are trying to remain competitive and are not pushing prices, Miller said. Coral Gables, like other suburban markets, has seen a rebound in leasing activity after a slow year last year, and is outperforming the market in terms of new contracts.

“What's going on in Miami is not necessarily unique. Most markets are seeing near record high rates and near record low vacancies,” Miller said. “What you're seeing in South Florida is mirroring what we are seeing nationally.”

In downtown Miami, three large blocks of unoccupied space built out by law firms remain. These are in the Wells Fargo Center, the Southeast Financial Center, and the SunTrust International Center where Akerman was previously located. Those large blocks are likely to linger because tenants of those large spaces are atypical. But there are also smaller existing spaces in downtown that have been built out by law firms that are now vacating the space.

Although leasing activity is generally expected to improve later this year, it is still likely to be at a level that is lower than usual, according to the report. While law firm landlords still hold the leverage in the Miami area this year, the market is expected to be more balanced in 2018 and 2019.

According to the report, the average amount of square feet of office space that firms rent per attorney in Miami has declined from a historical 900 to 1,000 square feet to a current 700 to 850 square feet. That translates to an average $55,000 in rent per attorney per year. Still, law firms are aiming to bring that down further, to 550 to 650 square feet per attorney, which would put rent at $47,000 per attorney per year, according to the report.

“Now you're seeing more law firms go toward more efficient floor plans,” Miller said. “This isn't a trend exclusive to law firms. It's happening across industries.”

Miller said law firms started using real estate more efficiently at the end of the recession in 2010 — a time when they were cutting storage space previously used for law libraries. The traditional large law office is evolving to something smaller.

According to the report, typical lease terms in Miami for new development have a 12-year term with a base rent of $50 per square foot with a tenant allowance of $100 and 12 free months. Typical renewals have a six-year term with a $43.50 base rent, $30 tenant allowance and seven free months. Subleases typically have a five-year term, base rent of $30 per square foot, $10 allowance and three free months. Relocations typically have a seven-year term at $24 per square foot base rent and $75 allowance with eight free months. All the contracts typically have an annual 3 percent escalation.

The nationwide report also broke out statistics for the Palm Beach County market. Although West Palm Beach is a smaller legal market, it has more similarities with Miami's market than differences, Miller said.

“There is still very little quality product in West Palm in places where law firms would typically locate,” he said.

There are four premier buildings in West Palm that Miller calls trophy buildings: the Esperante Corporate Center; CityPlace Tower; and Phillips Point East and West. Vacancy is limited so tenants have few options and have been forced to renew leases. Rents are similar to those on Brickell, Miller said.

Esperante Corporate Center has the highest pricing, with base office rents as high as $50 per square foot. Firms may look toward other high-quality buildings downtown or along Palm Beach Lakes Boulevard.

Still, average square feet and rent per attorney are lower than in Miami Dade, at $27,000 for current 750 to 850 square foot allotments per attorney. Typical lease terms for a new development offer a 10-year term with six months free at $42.50 base rent and a tenant allotment of $50 per square foot. Renewals typically have five-year terms, three free months, a base rent of $35 and a tenant allowance of $20 per square foot. Typical subleases are 3 ½ years for a base rent of $30 and a tenant allowance of $10 per square foot.

Because tenants are still downsizing and some possible new projects are in the pipeline, tenants in the West Palm Beach area are expected to have more leverage in 2019 as space becomes available, the report said.