Officials in West Palm Beach, Florida—located in a region that boasts some of the wealthiest residents in the world—have made strides in attracting leading financial firms, while also making significant investments in enhancing residents’ quality of life.
At ULI Southeast Florida’s West Palm Beach Development and Investment Forum in March, local officials and real estate development experts outlined the city’s plan for attracting new companies to the region while addressing some of the critical challenges facing economic development growth today.
“By 2050, 70 percent of the world’s population will live in urban environments,” said Gopal Rajegowda, a senior vice president at the Related Companies. That population wants great mixed-use environments, robust transit, exciting arts and culture, cutting-edge architecture, a sense of community, and great schools.”
Kelly Smallridge, the president and CEO of the Business Development Board of Palm Beach County, has been focused on incentivizing businesses to make the move to West Palm Beach, with a particular focus on financial firms. “When we look at the trend of who’s moving into Palm Beach County, we realize there are CEOs and company executives who own homes here, and yet they don’t have business locations here,” said Smallridge.
Incentivizing hedge fund managers and financial firm executives is the easy part, said Smallridge. Aside from year-round warm weather, Florida has no personal income tax. Coupled with a regulatory loophole which dictates that money stored by hedge funds overseas be repatriated by 2018 or be taxed at local rates, there is plenty of financial incentive for moving operations from the U.S. Northeast to low or no-tax states like Florida.
In addition, the city of West Palm Beach created the Flagler Financial District as a marketing tool for attracting these companies. “There are over 233 financial firms in the city, and we’ve put up banners and brass plaques on key office buildings in the district to signify that they are partners,” said Chris Roog, director of economic development for the city of West Palm Beach.
According to Roog, marketing has been a top priority in his department, with a more limited practice of doling out incentives like building and permitting grants. But space is a critical issue, despite the fact that officials are making real strides in attracting new businesses to West Palm Beach. Currently, the city’s most attractive office buildings—including One Clematis Street, Esperante Corporate Center, and City Place Tower—are at maximum capacity.
“There’s a supply problem in the Class A office market,” said Mark Pateman, the managing principal at Cushman & Wakefield’s Palm Beach County office. “There hasn’t been any new office construction since 2008. In the last downturn, most offices shoved into small spaces, but they have needed to hire and seek bigger offices. They want quality institutional properties.”
New tenants are flooding the West Palm Beach market, particularly in the tech, media, and information technology sectors, said Pateman, and these tenants are not interested in the offices of lore. “Twenty years ago, companies wanted expansive corporate parks, and that’s no longer the case,” said Smallridge. Instead, tenants are seeking hip, open-format offices in urban centers, which is in dire shortage in West Palm Beach.
“I can tell you that there has been a lot of lost opportunities in the city of West Palm Beach because of a lack of office space,” said Smallridge. “As just one example, the Cancer Treatment Centers had a need for 75,000 square feet [7,000 sq m] of office space. We courted the company, and when it came to the decision we simply couldn’t find the space.”
For now, city and county leaders are turning to historic buildings and nontraditional spaces and repurposing them for adaptive use for office buildings. Rajegowda notes that these types of spaces are especially attractive for companies looking to retain young talent with unique office environments. “The trend of design spaces is moving toward open ceilings, communal work spaces, and edgier environments,” he said.
Still, a disconnect exists between the city’s economic development initiatives and availability of Class A office space, which leaves plenty of room for opportunity for office developers. Roog is confident that the city of West Palm Beach will see an influx of new office development to satisfy market demand. “There is over $2.2 billion worth of new projects coming into West Palm Beach right now, and some of these are office projects,” said Roog. “They have their own set of needs and regulatory items that they need to address, and helping them move that along is one of our top priorities.”
Pateman, however, cautions against too much development too quickly, since West Palm Beach remains a third-tier office market. “The West Palm Beach office market absorbs about 40,000 to 50,000 square feet [3,700 to 4,600 sq m] of office space per year, and that’s a lot to absorb. I’m hopeful that developers will get more product off the ground, but it’s still a big risk.”
City leaders are certain that West Palm Beach will emerge as a top destination for new Florida residents. “West Palm Beach is really positioning itself for smart growth, maintaining quality of life and job growth,” said Roog. “Show me another city in south Florida in which the CBD is five minutes from the airport, a new train station in the heart of it, and a location between three wealth markets. That says it all.”