The South Florida office market was so tight it was down to single-digit vacancies, and headline-grabbing transactions in recent years were led by the half-a-billion-dollar trade of downtown Miami's Southeast Financial Center.

But it's time for a hiatus.

Marc Miller

“Overall, especially compared to that period between 2015 and 2017 when the market was really on fire, it has nowhere to go but slow down in a sense,” said Marc Miller, JLL research manager for Florida.

Miami-Dade, Broward and Palm Beach counties had negative net absorption by the close of 2018, meaning more office space is coming onto the growing market than being leased, according to a JLL 2018 fourth quarter report.

Miami-Dade closed the year at 534,205 square feet in negative absorption, Broward at 220,831 and Palm Beach at 92,089, according to the JLL data. That was the first time in Miami-Dade since 2010, in Broward since 2011 and Palm Beach since 2009.

Even more indicative of a calming market is another metric.

Miami-Dade is the region's most populous county and well-recognized internationally. But it closed the year with a 16.5 percent vacancy rate — the highest in five years.

“The last five years in South Florida for a variety of reasons have been extremely strong for

Steven Hurwitz

various factors. My guess is that in the next couple of years you'll see statistics that are probably more normalized,” said Steven Hurwitz, a Colliers International office expert.

But don't fear. He sees no major market correction.

“I think it's more of a normalizing of where you would expect rates and occupancy to be.” said Hurwitz, executive vice president and director of office services in Coral Gables. “I think you'll see more moderate, more normal growth.”

It's not that companies are downsizing or moving out of the region. It's that they aren't expanding like they used to as the region reached full employment and an inflection point, according to JLL and Colliers reports.

“Because hiring has been so slow and it's harder to find talent, some of those expansion plans have been delayed a little bit,” Miller said.

Also, companies already in place have been shrinking their square footage. It's “fitting more people into less space basically,” he said.

Burger King scaled back its headquarters to 150,000 square feet from 223,000 square feet at the Waterford at Blue Lagoon corporate park near Miami International Airport.

Generally, the move reflects the region catching up with a national trend and a response to rising rents, especially in central business districts.

In January, Miami's glass tower-lined Brickell neighborhood had the highest gross asking rent at $47.80 per square foot, and downtown Fort Lauderdale led the county at $38.36 per square foot, according to CoStar Group. Palm Beach, the mansion-studded barrier island with limited office supply, had the highest rents in the county at $51.15 per square foot.

Market Confidence

Despite the rising vacancies after years of robust growth, developers haven't been thwarted from building. Quite the opposite.

In 2018, office developers finished 680,000 square feet in Miami-Dade, about 110,000 square feet more than in 2016 and 2017 combined, according to JLL.

And they aren't slowing down. Look no farther than the mixed-use River Landing Shops & Residences on the north side of the Miami River near the Health District.

Developer Andrew Hellinger has scaled back the retail portion in favor of 135,000 square feet of office space that will be in addition to the originally planned 20,000 square feet on a mezzanine level above stores.

The fifth floor at a River Landing building was meant to be 50,000 square feet of retail. Under the new plan, this floor will become three levels to make for 135,000 square feet of office space and a rooftop courtyard.

“The walls were 36 feet tall. A typical office window is let's say 12 feet,” Hellinger said. “We were able to put three levels of office in what was designed as one-story retail space.”

Expansion of the office segment, which is set to open in early 2020, was driven by the state of the neighborhood rather than the region.

The Health District and the nearby Civic Center are major employment centers and helping drive development along the Miami River. The Health District is home to Jackson Memorial Hospital, the University of Miami Health System, the Bascom Palmer Eye Institute and the Miami VA Healthcare System. The Civic Center includes the Richard E. Gerstein Justice Building courthouse and state attorney's office.

“The vacancy factor in the Health District is zero,” Hellinger said. “We felt with the health care industry growing that there will be demand for office.”

River Landing also will have 528 market-rate apartments, shopping, 28,000 square feet of riverfront dining, 8,000 square feet of public space on the riverfront and more than 2,000 parking spaces, according to its website.

The office component is part of the 2.5 million square feet under construction in Miami-Dade and nearly 4.09 million square feet being built across South Florida, according to CoStar.