While commercial property owners struggle to find tenants in markets like New York and Chicago, vacancy rates for commercial spaces fell in South Florida across 2022.
The lack of personal income tax in Florida is part of what is attracting some of the nation’s wealthiest to the area.
Companies like Citadel and Related Cos. are moving deeper into the Florida market, signaling that the once-transient area is attracting long-term investors.
The snowbirds are coming to Florida, fleeing the freezing climate of the north as they do every winter, but this time they’re coming to stay and in the process transforming the skylines and lifestyles of the state.
Florida’s population grew almost 2% in 2022, making it the fastest-growing state in the nation for the first time since 1957, according to U.S. Census data, as families and businesses are drawn by lower taxes and growing numbers of jobs. That’s contributing to an office building boom in a state once better known for retirement communities and hotels.
While markets like New York and Chicago grapple with a surplus of older office space deserted by tenants willing to pay high rates in newer, Class A buildings, commercial markets like Miami and Palm Beach are seeing new construction rates soar as demand grows.
The commercial “market is performing totally differently than it has historically,” said Marc Miller, head of Florida research at global real estate firm CBRE. “When you start looking at Class A and what we would consider trophy assets, the real top of the market, we’re seeing growth at 30% year over year, and that’s being fueled almost exclusively by the new-to-market demand because these companies that are coming down are coming from higher cost markets.”
Migration Driving Growth
Florida was the top state for migration from within the U.S. in 2022, contributing to its population growth.
The state has no personal income tax and year-round sunshine, which served as a draw for some of the nation’s wealthiest looking to escape cities during and after the pandemic, according to Gillian Lieberman, a broker at William Raveis Real Estate, a luxury agency based in South Florida.
“I have a lot of buyers moving down, mostly from New York,” Lieberman said. “We have had a huge influx of New Yorkers, especially during and post-pandemic, but I also have people relocating from Illinois, New Jersey, Pennsylvania, Massachusetts, and especially California.”
Billionaire Stephen Ross, the founder of the firm that developed New York’s Hudson Yards, and his Related Cos. are moving further into South Florida.
“People are looking from the Northeast and relocating for jobs—not retirement—and companies are looking” for offices, Ross told Bloomberg. “It’s tax issues, and there’s the security issues. There’s just the ease of living.”
Related’s new mixed-use property in West Palm Beach has recruited Goldman Sachs and Steve Cohen’s Point72 Asset Management. Hedge fund manager Ken Griffin, one of the nation’s wealthiest individuals, recently relocated his company, Citadel, to Miami from Chicago, taking his billions in assets—including a renowned art collection—and employees with him.
Florida’s workforce surpassed New York State’s for the first time in December, with 9.669 million employed people compared with New York’s 9.661 million.
Part of that growth, Lieberman said, was thanks to the emphasis Florida’s politicians have put on business development and emphasizing the lifestyle available in the Sunshine State.
“That’s something that’s very unique to Florida,” she said. “Texas is sort of right behind us, in terms of development. But our leadership here and our infrastructure is very strong. And they are welcoming all these new players on the scene with open arms and working with them.”
Sunbelt Office Demand Overtaking Northeast
While demand for commercial office space is waning in northern markets like New York and Chicago, it’s growing in Sun Belt cities like Miami, Nashville, and Austin, according to a report from CBRE.
The firm estimates that the increase in remote work will result in up to 15% less office use per employee in the years ahead. Demand for newer Class A buildings is still high in typical markets like New York, but tenants are increasingly looking to shed underutilized office space in an effort to cut costs. Some Sun Belt markets, though, are the exception.
“We would expect that Class A space will perform relatively better, in addition to the secondary markets like Miami, Austin, and Charlotte,” Julie Whelan, CBRE’s global head of occupier research, said.
According to data from commercial real estate firm Jones Lang LaSalle, 2022 was one of the strongest years on record for commercial buildings in Miami. Overall vacancy in office spaces was down 60 points over the year, and asking rent rose 6.6% through 2022.
Direct vacancy remained below 16% all year, and Miami’s sublease availability has remained below 2.0% since Q2 of 2021, according to JLL data.
“The lack of sublease space is an anomaly in a post-pandemic office market, especially with surges in availability over the past six months in other major markets,” JLL’s report said.