For commercial real estate, specifically office leases, the last couple of years have been difficult for north Palm Beach County, due in part to consolidation in the financial services industry and the downturn of the housing market, explained Mark Pateman, commercial broker for Cushman & Wakefield. “What used to be a bright spot with vacancy rates as low as 6 percent has softened overall to 20 percent.”
The trend he’s seen locally has been about downsizing. Now, though, starting in the last quarter of 2010 and continuing through the first quarter of 2011, existing tenants who’ve hired an employee or two are needing more space and firms are taking the opportunity to move up to a higher quality building or to a preferred submarket.
“We are starting to see some new market entrants. Because of the overall economy returning to realistic levels, some new businesses can enter our market.”
Another recent trend he’s noticed: significant headquarters or large-user takedown of space that usually goes to Boca Raton. TBC Corporate, the parent of Tire Kingdom, for example, is now headquartered in Palm Beach Gardens at 4300 TBC Way.
Last year, G4S Wackenhut moved its North American headquarters from Palm Beach Gardens to a brand new 63,000-square-foot building in Jupiter on University Drive, Abacoa. And Nova Southeastern University, currently located in a 60,000-square-foot space at 3970 RCA Blvd., Palm Beach Gardens, will soon move to a new 75,000-square-foot facility on the corner of Military and I95 in Palm Beach Gardens.
Other than that, activity is up, he said. “I’m showing space more often. I’m optimistic. By the end of this year, we will see some real absorption, vacancy rates start to decline, and in 2012, we’ll see some rental rate growth. Landlords will start to push back on concessions by the end of 2011.
“Everyone is optimistic that Scripps and Max Planck will have a positive impact, too, but that’s going to happen in an evolutionary manner. Once those companies start to spin off new biotech firms, they’ll need lawyers, engineers, financial planners and new office space, but that’s still a long-term goal.”
Any high-quality office space is trading at very high prices, he added. “The next level down doesn’t have nearly as much interest. It’s still too early to take positioning risk for most people because there are still too many question marks.”
A highlight noted on CB Richard Ellis’ submarket quarterly report: Chromalloy Gas Turbine LLC, an aerospace company based in New York, will be relocating its headquarters to 3999 RCA Blvd., Palm Beach Gardens into a 30,000-square-foot building and adding 70 new jobs.
The county and the city of Palm beach Gardens have approved an incentive package of approximately $270,000 and final approval from the state to provide approximately an additional $800,000 in incentives is close at hand.
“This company falls within our economic program’s targeted industries and is exactly what we are looking to bring to the City of Palm Beach Gardens,” said Natalie Wong, the city’s director of planning and zoning. “This partnership is a result of the city’s commitment to provide financial incentives, and we are thrilled that we could be a part of helping to close this deal.”
Another interesting “development:” FPL is in the process of buying a vacant commercial property, 80 acres on the north side of PGA Boulevard between Interstate 95 and A1A, in Palm Beach Gardens. The site is zoned for 882,000 square feet of office, light industrial and retail space. In court documents that piece of property was owned by PGA North II of Florida LLC, personally guaranteed by Palm Beach Gardens builder, Dan Catalfumo.
In January, a Palm Beach County Circuit Court judge granted Seacoast National Bank a $32.6 million judgment against Catalfumo on the guarantee. In February, Seacoast moved to seize the land by filing a foreclosure lawsuit against PGA North II.
This purchase did amount to a good prospect for FPL, according to FPL spokesman Mayco Villafana. “We were not looking for property but this opportunity came up for very good price. We have no specific plans but this parcel, but it gives us several expansion options close to our headquarters.”
Reis Inc.’s recently released submarket commercial office report for North Palm Beach County shows first-quarter 2011’s vacancy rate is at 14.7 percent and the asking rent rate at $21.99 per square foot. The effective rent rate is listed as $16.13, and takes into account concessions that landlords have made to make the deal.
Compared to a year ago, these numbers were 15.1 percent vacancy rate, $22.12 asking rent rate, 16.28 percent effective rent rate.
Compared to the first quarter 2007, the numbers were seven percent vacancy rate, $22.93 asking rent rate, $18.75 effective rent rate.
Nationally, first quarter 2011, the vacancy rate is 17.5 percent, the first vacancy decline on record since the third quarter of 2007. Current quarter rent is $27.66.
While there is a relationship between how rents and vacancies change in a market, the level of rents is not set by the vacancy rate, said Ryan Severino, senior economist at Reis. “The rent level is set by supply and demand forces. How much are tenants willing to pay for space? If I look at our data, I can find a number of markets where the difference in vacancy rate is immaterial but the difference in rent level is rather large. The market is pretty efficient and competitive so it will set rents at a level that clears.”
Cushman & Wakefield’s statistics for the first quarter 2011:
Palm Beach Gardens / North Palm Beach:
2,848,931 square feet of inventory
20 percent overall vacancy rate
43,611 square feet leasing activity year to date
(69,843) square feet direct absorption year to date
$27.83 overall weighted gross rental rate.
781,100 square feet of inventory
18.3 percent overall vacancy rate
2,187 square feet leasing activity year to date
73,038 square feet direct absorption year to date
$23.26 overall weighted gross rental rate
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