Looking into 2005, Palm Beach County is poised for a strong real estate recovery vis-À-vis the office market spectrum.
Taking into account continued strong residential and corporate migration, excellent housing and a high quality of life, affluent cities that have melded strong residential and corporate bases (specifically Boca Raton and Palm Beach Gardens) will continue to thrive, as will many other, more residentially themed cities along the western corridor of Palm Beach County. Forecasted positive economic growth over the next few years will have a detrimental and inverse impact on office tenants in two ways — by increasing the difficulty of finding suitable space and by creating an independent landlord attitude when negotiating.
Anticipated strong corporate growth contrasting a limited amount of office building product will result in a gradual rise in rental rates and less overall incentives in the upcoming years.
As in many other U.S. office markets, Palm Beach County was impacted significantly by multiple events, including Sept. 11 and the corporate recession. With the technology and telecommunications wreck of 2001 and 2002, areas such as Arvida Park of Commerce (recognized as the area where IBM invented and manufactured the personal computer) within Boca Raton were hit hard.
Arvida Park of Commerce reached an abnormally high vacancy rate of 25 percent in the second quarter of 2002. Although rental rates fell that year and into 2003, this submarket, arguably the most visible office market for corporations, is coming back strong. The vacancy rate shrank to 17.6 percent in the third quarter of 2004.
Other key markets or submarkets have been performing consistently, most noticeably the Glades Road corridor of Boca Raton and the future “Boca Raton North,” the city of Palm Beach Gardens. With land still available in Palm Beach Gardens, and continued strength, growth and quality in residential developments, the area is destined to become as important to the north end of the county as Boca Raton is to the south end.
The announcement several months ago of a second Scripps Research Institute facility (the original is located in La Jolla, Calif.) containing a first-phase, 364,000-square-foot research facility to anchor the western quadrant of Palm Beach Gardens/Palm Beach County created tremendous excitement for the state, county and corresponding cities. This project is expected to generate national and worldwide attention. While Scripps appears committed to South Florida, small-time (and bureaucratic) politicians, in conjunction with environmental activists, have attempted to create roadblocks in housing the facility at its intended location.
Assuming the Scripps political and environmental battles end successfully, the other office market that requires an injection but has significant long-term potential is downtown West Palm.
Historically, this market has seen little growth, and its existing tenants are playing a real estate version of musical chairs. If City Place Tower — an anticipated 335,000-square-foot office development — commences and completes construction, downtown West Palm will have the first relevant first-class office project since Esperante was constructed in 1989.
This development is exciting because it includes features not available in any other building in the area. It also has the ability to jumpstart an office market that has been staid in recent years. The only downside is that its success would spell the demise of competing older downtown office buildings.
The challenges that South Florida faces in the future — congestion, lack of alternate highway options, inadequate public transportation systems and dearth of future available land — may limit Palm Beach County’s corporate base, but these drawbacks are balanced out and, in many cases, overcome by such positives as water, climate and the absence of a state personal income tax.
Ten years from now, as Scripps thrives, the area may be able to boast numerous up-and-coming biotech-related companies and a growing corporate list. And that would be something to be proud of.
Mitchell Millowitz is senior director of Cushman & Wakefield of Florida Inc. Reach him at (954) 938-2612.