Mid-year may see more Broward office activity

Amidst an economic backdrop of reduced consumer spending, business downsizing and rising unemployment, vacancy rates continued to rise and lease rates declined in 4Q09. Unemployment levels in 2009 reached their highest point since the 1991 recession, currently hovering at 10.1% for Broward County. Supply exceeded demand once again, and negative net absorption was recorded in 2009 for the third consecutive year.

Total vacancy increased by 5.5% from fourth quarter 2008 and is anticipated to fluctuate in 2010, along with lease rates. Sublease space is on the rise, with 643,811sf of sublease space now being reported for fourth quarter 2009. During this same time period last year, 312,853sf of sublease space was reported.

Overall leasing activity, including renewals, totaled approximately 2.0 msf for 2009, down slightly from 2008’s total of 2.2 msf. Leasing activity in 2009 consisted mainly of renewals and numerous “blend and extend” transactions.

Moving forward into 2010, tenants will hold enhanced leverage until employment begins to stabilize and expansion takes place once again. Larger tenants are anticipated to increase activity in the market by mid-year 2010.

Some of the larger lease transactions in the market for fourth quarter 2009 include a 110,477sf renewal signed by AT&T at Atlantech Center, a 39,524sf lease signed by Kaplan University at the Broadspire Building, a 31,000sf renewal signed by Tripp Scott at 110 Tower, and a 30,687sf renewal signed by the Florida Department of Revenue at Preferred Exchange Tower.

Tenants vacating space due to bankruptcy include NorTel Networks, which recently vacated 144,000sf in the Sawgrass submarket.

Due to economic uncertainty, sales activity decreased from the 706,800sf reported as of fourth quarter 2008 to currently 116,228sf of office product sold year-to-date 2009.

Lease rates

The average asking direct lease rate declined by 8.6% from the $18.18 psf NNN rate recorded during fourth quarter 2008. Class A space has seen a decline from $20.31 psf NNN in average asking lease rates over this same time period last year, to $18.20 psf NNN, while Class B space decreased from $15.33 psf NNN to $14.96 psf NNN. Several submarkets saw more significant declines in asking lease rates, such as Deerfield Beach, Fort Lauderdale (suburban), Cypress Creek and Pompano Beach due to increasing vacancy.

Landlords have become increasingly aggressive in attempting to retain tenants, offering increased incentives in order to stay competitive. The majority of demand for space has come from tenants who continue to review space options in an effort to contain costs.

Absorption

For the fourth consecutive quarter and third consecutive year, negative net absorption was recorded as supply continued to outpace demand. During this same time period last year, overall net absorption was negative 230,542sf. Currently, only three submarkets reported positive absorption.

Nortel Networks recently vacated 144,000sf in the Sawgrass submarket due to bankruptcy, while other tenants may announce similar plans in first quarter 2010. Sublease space is expected to increase slightly in first quarter 2010, as companies continue to downsize.

Construction

There are currently two buildings under construction in the Broward County market totaling more than 227,349sf. The Village at Gulfstream Park office tower could receive its certificate of occupancy as early as Feb. 11, 2010.