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South Florida Office Investors Pick Up Sales Pace in Second Quarter

Office Sales Volume Jumps 32 Percent From a Year Ago and Doubles From First Quarter
July 11, 2018
PGIM Inc.’s $248.5 million sale of the Sabadell Financial Center at 1111 Brickell Ave. in Miami to a joint venture of Kohlberg Kravis Roberts & Co. and Parkway Property Investments was the biggest office sale of the second quarter. Credit: CBRE.

South Florida’s sluggish office sales increased dramatically in the second quarter, fueled in part by the second-highest price paid for an office property in the market since 2012.

Palm Beach, Broward and Miami-Dade counties posted 165 office property sale transactions from April through June of this year for a total value of $984 million -- more than double the volume from the first quarter, according to CoStar Market Analytics.

It also eclipses the second quarter of 2017, when 152 office buildings sold for $743 million. Sales volume typically is modest in the first quarter following a flurry of year-end activity from buyers and sellers looking to finalize their balance sheets, said Pamela Stergios, an analyst with CoStar Market Analytics.

Stergios noted that rent growth and still-low office vacancy rates are driving investment sales across the region. Office vacancies in Miami-Dade, Broward and Palm Beach counties are below the national average of 10.3 percent, she said.

"There is a lot of capital out there to be invested, so if investors can find the assets, we will continue to post strong volume,” she said.

Some companies that own the buildings in which they operate are buying larger buildings than they originally planned, partly because they anticipate needing the extra space eventually, and also to hedge their bets against rising interest rates, said Jaime Sturgis, of Native Realty in Fort Lauderdale.

"People are looking down the line and biting off slightly more than they can chew," he said. "But it allows them to lock in the interest rate and gives them the opportunity to grow into their spaces."

For real estate investors, Bill Reichel of Reichel Realty & Investments in Palm Beach Gardens, said one of the the biggest problems is the limited supply.

"Real estate is a preferred (investment) vehicle, if you can find it," he said. "It's a good time in commercial real estate, but it's also challenging because finding (available)product is difficult."

The average price per square foot for office building sales in the second quarter dipped to $198 from $254 compared with the same period of 2017. With fewer 4- and 5-Star assets on the market, more of the sales involved lower-quality or lower-priced properties, Stergios said.

By far the most expensive transaction in the quarter was PGIM Inc.’s $248.5 million sale of the Sabadell Financial Center at 1111 Brickell Ave. in Miami to a joint venture of Kohlberg Kravis Roberts & Co. and Parkway Property Investments LLC.

The only other office building to sell for more in the tri-county region over the past five years was the Southeast Financial Center at 200 S. Biscayne Blvd. in Miami. Ponte Gadea USA Inc. bought it from JPMorgan Chase & Co. for $516.6 million in December 2016.

Meanwhile, Crocker Partners had the second quarter’s largest portfolio deal, paying $179.3 million for the 13-building Boca Raton Innovation Campus. The seller was a joint venture of Next Tier HD and Farallon Capital Management.

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