Over the past three years, South Florida has gained a reputation as a hub for financial firms relocating from New York, Chicago, and San Francisco. Major players like Thoma Bravo, Apollo Capital Management, Founders Fund, and Citadel have secured offices across the tri-county area.
This surge in activity had developers and brokers abuzz, proudly touting the region’s resilience in contrast to the challenges faced by office spaces elsewhere in the U.S.
Once a relatively unknown city outside of South Florida, West Palm Beach earned the moniker “Wall Street South” due to its magnetism for financial firms. The One Flagler project, a significant development by Related Companies in downtown West Palm, was aptly nicknamed the “hedge fund tower” in anticipation of its high-profile tenants.
However, data reveals that the total leased space by financial firms in South Florida didn’t quite meet the initial hype. While there was a rush for prime Class A spaces initially, the activity gradually tapered off, as reported by CompStak, which aggregates data from reported deals.
John Bell from Transwestern noted, “There was an initial gold rush for Class A space that happened, but eventually there were only so many tenants that are going to be coming down to the South Florida market.”
In 2020, amid the early pandemic reopening, South Florida was a top choice for venture capitalists and hedge funders. That year, the square footage leased by financial firms represented nearly a quarter of all office space leased, surpassing major financial hubs like Chicago and New York.
However, since then, financial firms have consistently leased less space in South Florida. In 2021, financial firm leasing represented 23.3 percent of all office leases, dropping to 16 percent the following year and 8.2 percent in the current year, according to CompStak.
Jeremy Larkin of NAI Miami pointed out that the available pipeline has been largely exhausted. He questioned, “Why are they not coming in greater quantities? There’s a finite universe.”
One key factor is that South Florida leases tend to be for smaller spaces compared to New York and Chicago. The expansion of companies in the region often involves only a small outpost, with support staff and operations requiring larger offices remaining elsewhere.
According to Bloomberg, over the past three years, 63 companies from New York and California moved to Miami, 11 to Miami Beach, and 37 to Palm Beach County. However, many of these expansions focused on executive offices, with most employees remaining in their original markets.
Donna Abood of Avison Young disagreed with some aspects of the CompStak data. She argued that the slowdown in financial firm leasing began in the second quarter of the current year, attributing it to persistent inflation and high borrowing costs.
Rents for prime office buildings in South Florida reached unprecedented levels, with rates surpassing $100 per square foot. This steep cost could also be a deterrent to further expansion.
Meanwhile, in other markets like New York and Chicago, financial firms have accounted for a larger share of total leased office space this year compared to South Florida, signaling a return to more typical growth patterns after the initial surge in 2020.
Despite the moderation, South Florida’s overall office market continues to outperform much of the rest of the U.S., according to Bell from Transwestern. He noted, “People across the rest of the country would love to have our so-called slowed level of leasing activity.”
