The Florida Office-Condo Trend: Will it Last?

A boxy, 24-story office-condominium built near the Miami River is nearly finished. It starts closings with buyers this week.

The structure is a rare breed: a large - 230,000 square feet - new office-condo in a downtown setting. But many Florida real estate professionals aren’t so sure it represents a new trend in office development as much as a temporary fad.

Nearly all business owners rent office space, they don’t buy it. For years, office-condos occupied a small corner of the market: niches like medical offices, often in suburban settings.

Yet when the South Florida housing market heated up and people were binging on every kind of residential property they could, developers got the idea that more individuals and businesses of all stripes might want to buy the offices they worked in, too.

Powered by low Florida mortgage costs, developers rushed to buy up office buildings and swiftly converted them into office-condos.

Office-condos popped up in proposed mixed-use projects. Commercial real estate broker CB Richard Ellis counts 59 office-condo projects in Miami-Dade County alone.

But industry experts now wonder: Has the office-condo craze peaked?

A recent CB Richard Ellis report concluded “there are indications that the supply of office-condos may be greater than the anticipated demand.”

Some experts do worry that the investors and speculators who moved into the office-condo market created a false sense of demand.

Clearly some of the sizzle has fizzled.

Plans for several office-condo conversions and new office-condo projects have been shelved. Developers of the most ambitious new office projects announced in South Florida have chosen to lease, rather than sell.

Some of the arguments for an office-condo remain: Florida home mortgage rates are low. Area rents have gotten higher. Buyers get some protection against rent hikes and a potential payday when they sell.

One condo converter, NR Investments, is spearheading a website and ad campaign touting the concept.

Its ad slogan: “We Hate Your Landlord Too.”

But large and medium-sized companies still value the flexibility to upsize and downsize that leasing allows, critics note.

Office-condos lock businesses into their space. Those constraints narrow the resale possibilities to businesses seeking a particular size.

Latitude One at least is sold out, says Wolfgang Herz, head of commercial real estate at Cervera Real Estate, who marketed and sold the office-condo built by Boston developer E.A. Fish.

“We have law firms, dentists, accounting offices,” Herz said. “Users are getting tired of the increasing cost of leasing. The other thing is in Brickell, we don’t have much supply of small office spaces, especially a supply of small Class A office space.”

Also buying the commercial real estate: Investors. “After closings, we expect about 50 percent of the building to go back on the market for lease.”

Follow the link to continue reading this Miami Herald story about the rise of Florida office condos …