Midyear Market Fundamentals In South Florida’s Three Counties

Graphs and Charts Report

The recovery of South Florida’s office and industrial markets continued through the first half of 2021, with dynamics unique to each sector.

In the office market, inventory in the tri-counties recorded increases in vacant space, but that dynamic added needed options to new-to-market tenants from urban areas to the north. Each new company relocation from cities like New York validates that South Florida’s dynamic employment pool can provide firms with the human capital needed to grow and expand their businesses.

In the industrial sector, the pandemic helped fuel an explosion of demand led by e-commerce and logistics companies who needed to be closer to end customers. With three out of the nation’s four largest deep-water ports located in South Florida, the region took advantage of the upswing in consumer spending and trade as the economy bounced back sharply in the last half of 2020.

Office Market

Office leasing remained depressed compared to pre-COVID levels. Approximately 3.2 million square feet in deals were signed in the first six months of 2021, compared with more than 5.7 million square feet leased in the first quarter in 2020. Throughout the pandemic, the region saw heightened demand from new-to-market tenants, primarily from the Northeast. More than 60 percent of leasing volume occurred in Class A assets, reflecting a focus on quality over value. Suburban submarkets accounted for more than 75 percent of deals signed, which was similar to pre-pandemic splits. Interest remained high for space in the central business districts (CBDs), which spoke to many tenants’ desire to remain in urban cores.

Overall asking rents for office in South Florida were $40.38 per square foot, full service, on incremental increases in all three counties. In Miami-Dade, overall asking rents rose 7.4 percent year over year to $43.02 per square foot, an all-time high. Broward’s overall asking rents rose 8.4 percent year over year to $36.52 per square foot. Palm Beach County had a 5.3 percent bump in rents in the last 12 months and ended the second quarter at $39.64 per square foot, mostly driven by rent escalations of 6.5 percent in Class A buildings. New inventory delivered over the last 18 months in Fort Lauderdale and West Palm Beach CBDs helped push asking rents higher for the overall market.

Overall vacancy rates for the region was 17 percent at the midyear, with the rate in Miami-Dade the highest at 17.6 percent, a 420 basis point jump in the last year. Broward County had a similar increase to 16.9 percent, while Palm Beach closed the quarter at 16.1 percent, up only 240 basis points year over year. Vacant space proliferated predominantly in Class A assets, as well as from new construction deliveries. This was acute in Palm Beach County, which saw several high-profile office project deliveries. Unlike several gateway cities, vacant office sublease space has not been a major contributor to increases in the rate, only 1.3 percent of overall inventory and well-below levels recorded after the last recession.

Industrial Market

New leasing activity year to date totaled 7.6 million square feet in the tri-counties, up significantly from the first half of 2020, when initial lockdowns and restrictions took hold across the country. In fact, leasing activity in the first half of the year surpassed 2019 levels by 21 percent. Miami-Dade accounted for more than half of all leases signed, with 4.4 million square feet leased, an increase of 17.2 percent compared to the same period one year ago. Broward County recorded 2.5 million square feet of new leasing activity year to date, with the second quarter reaching nearly 1.4 million square feet, a 19.9 percent increase compared to one year ago. Palm Beach County, on the other hand, clocked just 621,000 square feet in the first half of the year, a 19.6 percent decrease from the same period last year, which had the highest amount of space leased for the first six months on record.

Overall asking rents in the region were $9.78 per square foot, triple net, at the end of the second quarter. Asking rents in Miami-Dade jumped 7.7 percent year over year to $9.28 per square foot, the first time ever that asking rents averaged above $9.00 per square foot. Broward County rents improved by 1.4 percent to $10.05 per square foot on steady increases for available warehouse/distribution space. Market rents in Palm Beach County decreased year over year by 1.1 percent to $10.55 per square foot, but were up 1.1 percent quarter over quarter. New product in 2021 with higher-than-average asking rents, as well as limited available space options, allowed landlords to raise rents with confidence in the first six months.

Overall vacancy ended the second quarter of 2021 at 4.5 percent, slightly higher by 200 basis points than the level from 12 months prior. Miami-Dade had the largest increases in occupancy, with the vacancy rate falling to 3.4 percent, a decrease of 130 basis points year over year. Broward and Palm Beach counties saw increases in vacancy, rising by 40 and 90 basis points, respectively. The main driver for the decrease in vacancy was the 5 million square feet of positive absorption in the first half of the year. In addition, there were 3.4 million square feet in construction deliveries, with another 6.9 million square feet under construction.

 

Source: Commercial Observer

Are Transload Facilities The Next Frontier In The Industrial Investment Race?

American dollars grow from the ground

The growing logistics industry has not only created insatiable demand for warehouse space, it has ramped up growth in the transportation industry, creating a need for modern truck terminals with high-volume flow-through facilities.

Commercial real estate investors are beginning to take notice and are allocating more of their money to this niche sector.

“Historically, investors in truck terminals were large trucking companies that wanted to own their own facilities, like Old Dominion ABF, SAIA, R&L, Carriers, Central Transport and ESTES,” says Dean Brody, executive managing director and specialist in this investment area with real estate services firm JLL.

Today, this sub-sector is attracting big institutional investors and industrial real estate developers/investors. These include Centerpoint, Realterm Logistics, Terreno Realty, Brookfield, Duke Realty, Prologis, Stonemont, Altera, JP Morgan and others that have recently entered this market. Speculative development may not be far behind.

For example, in April, Chicago-based Dayton Street Partners acquired a 17,897-sq.-ft. truck terminal near Tampa International Airport in Florida from a private investor for an undisclosed price. The property is 100 percent leased to ABF Freight.

“This was a great opportunity to capitalize on increasing demand in the market and is part of a larger corporate strategy to invest in well-located, logistics-related real estate assets in Florida and throughout the U.S.,” said DSP Principal Michael Schack in a statement.

Integrated Service Provider (ISP) facilities are essential to supply chain efficiencies, Brody notes. Amid higher transportation costs and driver shortages, the need for them has been growing over the pst 15 years.

“The e-commerce boom has accelerated demand for those facilities by multiples,” Brody says.

“The purpose for these buildings is either redirecting cargo mode—usually from container to truckload—or consolidating and redirecting freight direction and what freight rides together,” according to John Morris, executive managing director and Americas industrial and logistics leader with real estate services firm CBRE.

De-containerizing cargo and transloading it onto trucks or rail cars facilitates logistics efficiencies, according to Brody. He explains, for example, that cargo from three 40-foot containers can fit into two 53-foot truck trailers, and it is more cost-effective for those trucks to deliver the cargo than directly transporting it over 50 miles to the final destination because the empty containers then must be returned to the origination point.

Markets that see the heaviest cargo movements have the highest demand for these functionalities, Morris notes. For example, there is a significant density of transload buildings in Southern California’s Inland Empire, where cargo is often moved from the ports of Los Angeles or Long Beach, Calif. because it costs less to de-containerize it there than closer to the ports.

“Containers coming in from China are dray-moved to these buildings, de-containerized into different trucks or rail cars and moved out to mostly points further east from there,” Morris says.

The fee revenue models for these facilities are similar to any real estate tenancy—users typically own or lease them, according to Morris. However, many are also third-party facilities, where users are charged through a 3PL arrangement that is a blend of fixed and variable costs. Brody notes that pricing is on a per-door, per-month triple-net basis.

ISPs are located in logistics hubs all over the country. Those near intermodal facilities and ports will have transload options, Brody says, noting that terminals in infill locations in places like Northern New Jersey, New York City outer boroughs, Chicago, Seattle, the San Francisco Bay area, Los Angeles and the Inland Empire are achieving the highest rents.

ISP property values are dependent on location, but cap rates on these assets tend to be on average 1.5 percent higher than those for class-A warehouse properties, according to Brody. He notes that the spread is narrowing in core markets, where cap rates on ISP assets are now only 50 basis points to 100 basis points higher than for a warehouse, or might even be the same.

While returns on investment for ISP facilities are lower than those for warehouse properties, Morris says that they are marginally less expensive to develop, as transloading buildings do not require much clear height, and their structures typically do not need to support heavy automation. Such buildings also have lower coverage ratios, typically about one-tenth of the site, but they do require a lot of land to accommodate the higher number of axles travelling in and out than a traditional warehouse does.

“ISPs, which are basically concrete yards with a transloading facility, haven’t changed much over the last 50 years, except modern facilities have 100-foot dock doors as opposed to 70 to 90-foot doors found in older facilities, to provide greater flexibility in movement,” Brody says.

Cities generally don’t allow the development of ISP facilities near large population centers, as they have several negative aspects: they are aesthetically unattractive and inherently involve heavy truck traffic and significant CO2 emissions. Therefore, Brody notes that there is tremendous value in land already zoned for ISPs.

Despite high demand for these facilities, they have traditionally been developed on a build-to-suit basis for single-tenant users, such as large Fortune 100 retailers or third-party logistics providers, including Fedex, UPS, XPO and National Retail Systems. But going forward, Brody expects that spec developers will soon begin capitalizing on the growing need for ISP buildings.

 

Source: Wealth Management

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What’s In The $1T Infrastructure Bill For Real Estate?

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The Senate just passed a $1 trillion infrastructure package, then turned to a $3.5 trillion measure that could include more extensive investments in housing and changes to zoning policies.

The infrastructure bill includes $550 billion for bridges, roads, high-speed internet and other projects. The White House has billed the spending package as the largest-ever investment in public transit. Under the measure, Amtrak receives $66 billion, which is the most the rail service has received since its founding in 1971, according to the New York Times.

The Senate is now considering a $3.5 trillion plan that Democrats hope to approve through reconciliation, a process that would not require Republican support. The resolution allows for up to $332 billion for housing and other investments. That could help fund a $213 billion Biden plan to build or preserve more than 2 million affordable housing units. Other housing proposals in Biden’s infrastructure plan, including an expansion of Section 8 housing vouchers and incentives for cities and states to eliminate exclusionary zoning, could also make it into the larger plan.

The Associated General Contractors of America, whose members would benefit from the approved plan, urged the House to pass it as quickly as possible. House Speaker Nancy Pelosi has indicated that the chamber will not vote on the initial bill until the Senate passes the more extensive measure.

“Unfortunately, some members of the House want to delay action on the bipartisan measure until passing an unrelated, partisan, spending bill,” said Stephen Sandherr, the group’s CEO. “The last thing Washington should do is hold a much-needed, bipartisan infrastructure bill hostage to partisan politics.”

The New York Housing Conference is hopeful that the budget legislation will ultimately include changes to the Low Income Housing Tax Credit program. The group is advocating for a change to the program’s so-called “50 percent test,” which requires 50 percent or more of a development to be financed through private activity bonds in order to be eligible for such tax credits.

Because the federal government caps the number of such bonds New York can issue, the test limits affordable housing construction. Reducing the threshold to 25 percent would add 10,000 affordable housing units each year in the state, the group estimates.

“We have a housing crisis in this country. We certainly have a housing crisis in New York,” said Rachel Fee, executive director of the New York Housing Conference. “Getting around the state caps has to be a priority for New York.”

 

Source: The Real Deal

Amazon Opening “Last-Mile” Distribution Center In Coral Springs

amazon warehouse

Amazon is opening a 250,000-square-foot warehouse facility in Coral Springs to serve as a “last-mile” distribution center for the city and surrounding communities, according to Coral Springs officials.

The new center will provide 200 full-time jobs. It will be in the city’s Commerce Park, leasing space in the Exeter Property Group facility.

Amazon also purchased $3.5 million property in the south end of the corporate park to be used for truck parking and employee parking.

“Business expansion and job creation are essential to the growth and vibrancy of the City of Coral Springs and the reason we are excited to welcome Amazon to our Commerce Park,” Coral Springs Mayor Scott Brook said in a statement. “The creation of 200 full-time, diverse jobs in a post-pandemic climate is the boost we needed to jump start a stronger economy long term.”

Amazon has been expanding operations across South Florida as part of its efforts to get products faster to customers. In Tamarac, the global e-commerce giant is opening a same-day fulfillment center in the city’s industrial zone with the goal of delivering items to customers within about five hours, city officials said.

Brook added: “Their move to the newly built 250,000 square foot warehouse facility, is a strong signal to other large employers and industry leaders the benefits of our city’s location to the Sawgrass Expressway and connectivity to neighboring communities.”

Brook credited Greater Fort Lauderdale Alliance in working with city staff to help bring Amazon to Coral Springs.

It’s not clear yet when the new facility will open. Amazon could not be reached for comment.

Source: TapInto

Palm Beach County Plant Nursery Could Be Rezoned For Industrial

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A plant nursery west of Boynton Beach could be rezoned as industrial, potentially leading to redevelopment.

Las Farms of the Palm Beaches LLC, managed by Lois and Andrew Soowal in Deerfield Beach, filed a land use amendment with Palm Beach County officials for the 6.95-acre site at 9437 S. State Road 7. It’s a few blocks north of Boynton Beach Boulevard.

The agricultural site at 9437 S. State Road 7, Palm Beach County, could be rezoned industrial.
(PALM BEACH COUNTY RECORDS)

It’s currently zoned “agricultural” and has a plant nursery with a 3,713-square-foot office building. The application calls for rezoning it to “industrial,” with only light industrial uses. Heavy manufacturing, uses that create lots of noise, operate 24/7 or use hazardous or toxic chemicals would not be permitted.

The application says the maximum amount of industrial space permitted under the new zoning would be 136,234 square feet. This would generate 964 daily vehicle trips, according to the developer’s traffic study.

The developer’s representative, Jennifer Morton of Palm Beach Gardens-based JMorton Planning & Landscape Architecture, said the new zoning would permit both industrial development and the business offering landscaping services, which are not permitted under the current agricultural zoning. The owner has not decided whether it will redevelop the property with industrial buildings in the near future, but that would be a possibility under the new zoning, she added.

There has been a spike in demand for industrial space in Palm Beach County, as vacancy rates have fallen and rents have increased. The site would probably be worth more with industrial buildings, depending on the tenants.

In the application, Las Farms noted that only 1,700 acres of the 22,000 acres designated for development in the county’s Agricultural Reserve have no development approvals. Over the past 20 years, the Ag Reserve has become a mostly residential area. The application says the industrial zoning would create more job opportunities for the area on one of the few remaining development sites left.

The land use application is expected to go before the Palm Beach County Commission in November. After a state review, it would require a second county commission vote at a later date.

 

Source: SFBJ