In what had been an appallingly weak performance stretching back, almost without relief, to 2006, the market is showing signs of positive reversal. “An improved business environment has created greater tenant commitments than last year and tenant confidence is evidenced by stronger leasing activity and positive overall absorption figures during the first half of 2012,” writes Cushman & Wakefield in a second quarter report. By Reis’ count, net absorption, following sub-zero totals in five of the past six years, has run persuasively positive year-to-date in 2012. Including the second quarter’s 52,000 square feet, the total for the first half of the year accompanied by no new supply was positive 160,000 square feet.
Vacancy ended the latest quarter at 20.8%, down 20 basis points for the period, down 70 from the cyclical high reached at the end of 2011. July followed with 38,000 square feet of positive absorption and a decline in vacancy on the order of 20 additional basis points. Rents, following three consecutive years of loss, have stabilized; growth should soon follow. At $28.15 psf and $22.29 psf, asking and effective averages for the second quarter were down 0.1% each for the quarter following 0.1% increases the quarter before. July followed with an essentially flat performance. Additional improvement is expected over the remainder of the year.
Supporting the market’s turn toward recovery has been the cutoff of new construction. Only 136,000 square feet of competitive general purpose, multi-tenant space delivered over the two-year span 2010-2011 (all in 2011). No space has delivered year-to-date in 2012 and only 38,100 square feet of space of this type were underway per the date of this report, all in the Monet Building project in Palm Beach Gardens. Its completion date has not been specified. Construction began in April 2011. “With high vacancy and limited access to construction financing, developers remain idle,” comments Marcus & Millichap in its third quarter 2012 report on the county market.
Perhaps not completely idle, though: two significant mixed-use developments with office components are moving through the pipeline. Accordingly, the South Florida Business Journal reported in August, the county has approved the $300 million Transit Village mixed-use development proposed for West Palm Beach—following “about six years of planning and wrangling over density.” Plans for the site, located near the Tri-Rail station at Banyan Boulevard and North Tamarind Avenue, include 400,000 square feet of office space along with residential, hotel, and other components. The developer has received “several letters of interest from tenants,” according to the source. In addition, reported the Journal in a separate August report, developers are hoping to begin construction on the $200 million Atlantic Plaza II project in Delray Beach’s “Main & Main” area (Atlantic Avenue and Federal Highway). The opening phase, according to this source, would include 50,000 square feet of office space along with residential and other components. A second phase with 50,000 square feet of office space would follow upon completion of the first, which the developers expect would require 18 to 20 months. Reis cites respective expected completion of August 2014 and May 2016 for the two phases.
“As economic conditions continue to slowly strengthen,” comments
Cushman & Wakefield, “overall market conditions should improve further throughout the metro area.” The moderate positive net absorption anticipated by Reis for the remainder of the year would result in a year-end total of about 250,000 square feet along with a decline in vacancy to 20.4% and positive rent growth for the year above 0.5%. Vacancy should fall under 20.0% in 2013 as progress continues.