It was just a few days into 2021 when veteran Miami commercial real estate broker Tere Blanca knew that Miami’s office market was about to take off. Private equity giant Blackstone had just announced a long-term lease deal in downtown Miami at the office complex 2 MiamiCentral, taking 41,000 square feet across two floors of the building. While the company had said the previous fall that it would be opening an office for more than 200 of its tech employees in downtown Miami, the official announcement sealing the deal was a major moment for the city. “I remember having a team meeting and saying, ‘this is going to fuel new demand for space in Miami that’s going to be unprecedented,’” said Blanca, who founded Blanca Commercial Real Estate in 2009 and has been in the commercial space for 35 years. “It was really the beginning of a transformation.”
The numbers show it has indeed been a historic time for Florida’s second-biggest city. Starting office rents for the Miami office market and Fort Lauderdale rose 17.2 percent between 2019 and the second quarter of 2022, according to data from CompStak. Of the deals tracked, more than 25 percent of the tenants inking deals in the region between the second quarter of 2020 and the second quarter of 2022 have come from the FIRE sector, an acronym for the finance, insurance, and real estate sectors. In addition to Blackstone, other major firms like Citadel, Goldman Sachs, and Microsoft have chosen to grow their presence in Miami, drawn by the promise of warmer weather, lower costs of living, and increasingly, talent that has relocated to the Sunshine State. This mass migration trend has been championed by the city’s leadership, especially Mayor Francis Suarez, who has made it his mission to market Miami as a better alternative for companies in traditional business hubs around the country.
While Florida has always been a haven for retirees, tourists, and as a seasonal getaway for the wealthy, the recent migration to the state has been steadily rising. According to 2020 Census data, Florida is one of the fastest-growing states in the country in terms of population growth, adding 2.7 million residents between 2010 and 2020. On a city level, Miami’s recent growth spurt has been big news, but it does follow historical trends. Miami’s nickname, “Magic City,” derives from the city’s exponential population growth from just 5,000 in the early 1900s to more than 440,000 in 2020. However, that figure accounts for residents in Miami’s city limits. By incorporating the entire metropolitan area, the figure expands to 6.2 million.
Over the last 2 years, when the pandemic led people to flee places like New York City, once the epicenter of the coronavirus outbreak, many chose Miami. Mayor Suarez, who was first elected to office in 2017 and was reelected last fall, said in his victory speech in 2021 that he would “finish what we started,” pointing to his priorities of low taxes, courting the private sector, growing the city’s tech and finance sectors, and being “the capital of capital.” Several months later, a steady stream of companies have been moving their headquarters or opening and expanding their offices in the Miami area. Of the new leases signed in the city’s office market, 45 percent are from tenants new to the market, according to a report from the Miami Downtown Development Authority.
Eric Groffman, an Executive Vice President at CBRE’s Miami office, said there have been two distinct phases of companies migrating to Miami: in early 2021, when there was an initial wave of leasing deals with financial firms and venture capital firms; and the last 6 months up until now, where there has been a new wave of deals from many professional service firms, particularly law firms. Several big name firms including Sidley Austin, Kirkland & Ellis, and Reed Smith recently signed deals for major expansions of their office footprint. Groffman, who heads up a leasing team at CBRE that represents landlords, said he anticipates the next phase of companies that will make the move to Miami will take even larger footprints than they are seeing now.
“We think what’s coming are these bigger users and that’s why a lot of professional servicers are setting up for clients to be here in the near future,” Groffman said, pointing to Citadel’s lease at the under construction office tower 830 Brickell, where the firm will establish its new headquarters. His team is seeing more leases in the 50,000 to 100,000-square-foot range, a big change for a market where leases typically average between 5,000 and 7,000 square feet. “I think other groups of similar size and scale will be moving to the market shortly,” he said.
Commercial real estate firms have taken notice of the Miami migration and started looking at deals. In April, New York City real estate magnate Harry Macklowe made his first buy in Miami when he acquired a development site for $31.9 million located next to Dadeland Mall. His firm has plans to build twin apartment towers at the site. Meanwhile, fellow New York-based firm Related Companies has been trying to build a residential and hotel complex at the site of the historic Deauville Beach Resort in Miami Beach. That project was approved by a city commission and will go to voters in November. Office development is picking up steam too, with more than 1.5 million square feet of office space currently under construction, according to an Avison Young report. That’s good news for Miami, which hasn’t been immune to the flight-to-quality trend. “We don’t have a huge amount of new product readily available,” Blanca said.
And as the city’s population grows, so has the demand for rental housing. In terms of rent growth, Miami recently ranked second in the country, according to a report from Apartments.com. “Every developer I know that has built and owns multifamily says their projects are full and whatever is delivered gets rented very quickly,” Blanca told me. In the second quarter of this year, the vacancy rate in Miami’s multifamily market was 1.2 percent, the lowest figure of all major markets in the US, according to Marcus & Millichap. Meanwhile, by the end of the year, 8,700 apartment units are expected to be completed in Miami’s metro area. While most of the projects coming online are luxury rentals, there are public-private partnerships underway to create more middle-income and workforce housing.
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The right recipe
Miami has long been a top tourist destination for both domestic and international travelers. The city has the busiest cruise port in the world and is known for its vibrant nightlife and art scene. What it hasn’t historically been known for is being a tech hub, but that has started to change since late last year, when a tweet from the city’s mayor kicked off a movement of tech firms from Silicon Valley to Miami. And it’s not just the tech world and cryptocurrency that Suarez has been courting—-Miami’s mayor has been selling his city as a business-friendly utopia that has all the benefits of a big city without the higher taxes, crime, and regulation that he believes other major cities are struggling with. In an op-ed for the Wall Street Journal last month, Suarez said people are moving to Miami en masse to avoid what he calls “the socialist model” of other big cities like New York and San Francisco to adopt “the Miami model” philosophy.
Suarez’s message has clearly resonated with many people around the country, and some firms too. Citadel’s leader Ken Griffin announced he was moving his company’s headquarters from Chicago to Miami in June, months after he began raising concerns over crime rates in Chicago. In a letter to employees announcing the move, Griffin didn’t mention crime as one of the factors leading to the relocation, but he did praise Miami’s corporate environment. “Our recipe for success is quite simple,” Suarez told Fox Business host Maria Bartiromo in a TV interview last month. “We basically keep taxes low, we keep people safe, and we lean into innovation.” He went on to say that Miami has a budget surplus of $145 million, has low unemployment, and is on track to have the lowest homicide rate since the 1930s. Suarez is a Republican, though in Miami, the office of Mayor is a non-partisan position. The city leader was reelected in a landslide last year and has become popular on a national level as well, with reports indicating he’s considering a presidential run. However, he has also taken criticism for not paying enough attention to local issues and controversy over the hiring and firing of the city’s former police chief.
While interest in Miami from corporate firms seems to be at an all-time high, there are notable hurdles that the city and development community are facing, like housing. The multifamily market is experiencing super low vacancy and rapidly rising rents, and while that’s good for the real estate industry, the higher rent burden has led residents to look outside the city limits for better deals. As a result, Miami’s population dropped by more than 30,000 residents between July 2020 and July 2021. There’s also the ever-present threat of hurricanes to the coastal city. Miami is one of the most vulnerable cities in the country when it comes to hurricanes, and recent reports have shown that the risk from storm surge and flooding will get worse over time. And while Suarez and other Florida officials have touted the ongoing migration of businesses and people to the Sunshine State, there have been reports that some people are moving back to cities they left during the pandemic.
As development has ramped up in the Miami area in order to meet the demand for office space and housing, agencies tasked with overseeing plans, reviews and permitting have struggled with the increased volume, Blanca said. However, they are working on streamlining the processing online. “One thing we have going for us is that the Miami metro is a fairly young community,” she said. “There’s still a blank canvas there to adopt best practices for what we do. And it seems like we’re certainly trying very hard to make that happen.”
Other cities looking to bring in more businesses and grow office districts may not take the same strategy as Suarez, especially given his message’s political bent, but what officials and the real estate industry can take from it is the role marketing and messaging can play in driving the conversation about a city, and what leads companies to act. Miami already had a lot going for it and a solid office market to begin with, and with Suarez’s appeal to businesses looking for a friendlier climate, it is gaining larger occupiers and growing rapidly. The city will have to contend with rapid increases in housing costs and the existential threat of hurricanes to its coastline going forward. Whether the office market eventually plateaus is something the industry is watching, but for now at least, the city and its commercial real estate industry are enjoying the spotlight.