Ten Year Chart Comparing Gross Asking Rent for Class A (yellow), B (maroon), and C (purple) Office Properties in Miami-Dade County Chart Courtesy of Costar as of 11/11/16
Having recently run into a situation where a Miami office building seemed to be classified lower than it actually is, we wondered what the financial impact of this, in rental rates, might be. To get a feel for this, we evaluated average asking gross asking rent per square foot for office properties in Miami-Dade county by class, looking at A, B, and C class properties.
The charts herein show the results of all three. Looking at only the most recent prices, one can see that the average for class A is approximately $41.80, for class B is about $28.80, and for class C is about 25.75. Given this, one could conclude that class B garners 11% more in rent than class C, and class A garners 45% more than class C.
This may be understated, however, given the data source. Class A properties are almost always quoted on a triple-net (NNN) basis, as are some class B properties. We believe that the “gross rent” used in this data source would include any NNN expense, but also believe that in some cases the NNN expense has not been entered, thus registering as zero. As one comes into class B properties that are NNN, this is likely more common, as the properties tend to be less high profile. Thus, the gross rent may be understated as the class improves. In any case, we know there is a difference, and this quick analysis provides some measure of what that is in the Miami area.
A similar effect would be anticipated in valuation. The effect may be even more pronounced, actually, as higher quality properties tend to trade at lower capitalization rates (higher prices in relation to net operating income), which would further increase the spread in valuation versus that in rental rates.
Also see current sales and leasing trends charts for office properties in Coral Gables, Doral, Hialeah, Homestead, Miami, Miami Beach, Miami Lakes, Miami Springs, North Miami, North Miami Beach, and Pinecrest.