Miami’s New Tenants Are Opting For Short-Term Office Spaces
Interior architectural firm Highland Associates has designed some of the country’s premier offices: Morgan Stanley’s global headquarters in Midtown Manhattan and the 2 million-square-foot Brooklyn office of JP Morgan Chase. And yet, when the New York-based firm came to Miami this past spring, it decided to forego opening a traditional office. Instead, it opted for a co-working space.
“Something ironic can actually be good,” said Ian Tournquist, who heads the architectural firm’s Miami team.
Highland Associates is one of the companies that migrated to Miami this year, amid the disruption caused by the pandemic, thrusting Miami into the limelight as the next big tech and finance center. But many of the newcomers didn’t open permanent offices. Rather, these companies took refuge in short-term subleases, co-working spaces, and spec suites.
Post-lockdown, with the future of offices still uncertain, Miami gained traction as an office boomtown. A slew of corporate giants and startups announced they would be opening up offices in Miami. But the office market has yet to produce eye-popping statistics matching the hype. In fact, office vacancy stood at its highest point in eight years, totaling 16.9 percent during the second quarter of 2021 in Miami-Dade County, while net absorption rates remained negative at 144,262 square feet, according to market reports.
And yet, while traditional leasing hit record vacancy, available sublease space has yet to reach the peak levels seen during the last recession, per brokerage Avison Young’s data.
That’s likely because the companies that moved to Miami opted for short subleases and shared offices.
CP Group and Monarch Alternative Capital have witnessed this trend play out at their 34-story CitiGroup Center building in Downtown Miami. While 160,564 square feet of vacant space remains unleased at the building, new-to-market companies have flocked to its spec suites — move-in-ready offices typically associated with flexible, short-term leases — taking 48,180 square feet over the past year. Seeing the demand, the building’s owners are adding an additional 70,000 square feet of spec suites.
Even as Florida became a COVID-19 hotspot earlier this summer, co-working space surged. WeWork’s subscription-based offering in Miami grew by 109 percent from January to July 2021, according to company data. While the co-working giant owns just 1 percent of the market, it filled 21 percent of the office demand in Miami in the second quarter, WeWork CEO Sandeep Mathrani said at a Commercial Observer event in Miami Beach.
At Pipeline Workplaces, a Florida-based competitor, occupancy is over 90 percent across its seven locations, creeping back to pre-pandemic levels, said CEO Philippe Houdard. Florida newcomers make up a “material” share of Pipeline’s clientele, the executive added, though he declined to provide specific figures.
For any company relocating, the flexibility and lack of preparation that shared workplaces offer is appealing. Why go through the hassle of finding vacant space and building it into a proper office when one is immediately available with all the desired bells and whistles — with no strings attached? Highland Associates considered signing a traditional lease, but quickly abandoned those plans. “We didn’t have to go through the expense of building out our own office: Procuring the furniture, arranging for the cleaning services, bringing in all the needs of the pantry system; little things like that add up,” said Tournquist. Now his team of five employees works out of Pipeline’s location in Doral.
Co-working offices also serve as “band-aids” for new-to-market firms, said Cushman & Wakefield office leasing broker Brian Gale. Since last January, Chicago-based hedge fund Citadel has been touring the market for a permanent home in South Florida. In the meantime, a handful of its employees are based at WeWork’s location inside the Southeast Financial Center building in Downtown Miami, said a source familiar with the company’s dealings. Firms will also first send a few top executives to “get a lay of the land” before signing a long-term deal, said the head of law firm Greenberg Traurig’s Miami office, Jaret L. Davis, who has shepherded some of these moves.
The city’s ability to provide these temporary spaces has become a crucial issue in its quest to become a corporate mecca. Even local leaders Miami-Dade Mayor Daniella Levine Cava and City of Miami Mayor Francis Suarez have helped broker deals. Davis launched a program to sublease part of Greenberg Traurig’s Miami office to companies looking to move down, a move he made after holding discussions with the two mayors about the scarcity of quality short-term offices that wealthy companies seek. “If somebody wants to come into our community, invest in our community and become a corporate player in our community, we definitely will be there to help facilitate,” the lawyer said. Its first tenant is none other than private equity firm behemoth Apollo Global Management, which moved into a 3,500-square-foot sublease this August. It’s expected to stay less than a year, Davis said, as it scouts for an office that’s six times larger.
There are also financial incentives at play. It’s common practice for new-to-market firms to prepare a long-term lease, but wait until after a local government has granted tax exemptions to sign the document, said Colliers broker Jonathan Kingsley. If officials know that a company is moving operations to their region and has already signed a lease, they may be less inclined to grant them. As they wait, companies will sign a short-term office deal.
But announcements of new Miami offices sometimes convey more grandeur than the reality on the ground, especially for startups. In July, Canadian startup Silofit — which transforms unused rooms in office buildings into private, rentable gyms — said it was opening its U.S. headquarters in Miami. But at the time, the company’s U.S. base only consisted of one employee working at WeWork’s Brickell outpost. While CEO and co-founder Wilfred Valenta said the company plans to hire 25 employees within the year and to lease a traditional office as large as 5,000 square feet, he also acknowledged the objectives were still a moonshot. “To be honest, it’s still a little bit ways away,” the executive said.
It remains to be seen how the subleasing and co-working deals will affect Miami’s office market overall; whether new-to-market companies will eventually move into traditional offices or perhaps head back to wherever they came from.
“We aim to have our international headquarters here,” Silofit’s Valenta said. “But we’ll have to see how things pan out.”
Source: Commercial Observer