SPECIAL REPORT #1: Tenants Are Leasing the New Buildings, but Can Lenders' Concerns Slow Demand?

February 13, 2023

By Melea VanOstrand

 

The pandemic changed the way many companies operate, and with remote work a norm for many, office buildings are facing a new challenge: how to attract workers back to the office.

The office building that’s able to attract returning workers will have the most successful leasing numbers, according to Suzanne Amaducci-Adams, head of Bilzin Sumberg’s real estate practice, who says those will be the newer, highly amenitized, and well-located offices.

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There was a general slowing in leasing deals in Q4 of 2022, Amaducci-Adams says, but with the rise in interest rates (which tripled) and increased leverage on the properties, the value of the properties has gone down, and people may be more hesitant to do large-scale transactions. 2023 will be the year of corporate change, she says, as subleasing office space is on the rise and some tenants may default.

“People are going to have to make a decision now on their spacing needs and now that COVID is not completely behind us, but pretty much behind us, and people are going back to work, they’ll have to make decisions about how much space they really need and what their schedules will look like. I think the five-day workweek has been permanently altered,” said Amaducci-Adams.

Matthew Katzen, senior vice president of Lee & Associates South Florida, is also seeing downsizing in office space and the scheduled work week.

“It depends on what companies do. I do have a few situations where they’re closing offices because they don’t need as much redundancy in their workforces as they work from home. I have some that are the opposite,” said Katzen. “However, I haven’t had an issue backfilling those spaces when they become available.”

It’s a landlord’s market, Katzen says, especially since there’s limited office space in the Miami area. Now, there’s new office growth in areas such as Hollywood or Dadeland as tenants want larger spaces in suburban areas.

“I do think it’s pushed its way out. Commercial developers in Wynwood are selling their projects there and buying in adjacent neighborhoods like Allapattah,” said Katzen. “The rents in Wynwood are now high.”

Although leasing demand is high, the lease terms remain about the same.

“Tenants are pushing for shorter terms. I think that’s one of the benefits of going into these tighter markets, because in the suburbs you get more flexible terms. But if you’re going into one of these new buildings in Class A space, the owners are dictating the terms, and the lease could be five to 10 years,” Katzen said.

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