Industrial Real Estate Market’s New Demand Driver Changing Space Requirements

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Industrial became the belle of the commercial real estate ball after the pandemic supercharged e-commerce demand and led Amazon to accelerate its already-voracious warehouse expansion. But that party couldn’t last forever.

“That was a one-time event. That’s like laying down the railway tracks for the rest of time because you’re building an infrastructure for transportation to support your business,” Marc Wulfraat, president of supply chain and distribution consulting firm MWPVL International, told Bisnow, adding that Amazon’s infrastructure build-out is not yet completely over.

The biggest name in e-commerce last year began pulling back on distribution centers and has continued cutting costs this year, leading the industrial market to look elsewhere for its next biggest demand driver.  Now, a new one is beginning to emerge that could change the shape of the industry.

Companies looking to reduce exposure to supply chain uncertainties and global conflict risks are increasingly looking to move manufacturing operations out of East Asia and return them to the United States or as nearby as possible, experts say, trends known as reshoring and nearshoring.

“Companies are now thinking of getting out of China and specifically coming to the U.S. as a form of insurance,” Reshoring Initiative founder Harry Moser said. “For decades, there were occasional hiccups in the supply chain, but basically, it went smoothly. Now there’s these … issues that have come up with the risk of something happening over Taiwan that could end shipments for five years or 10 years or who knows how long if there’s a war.”

U.S. manufacturing growth outpaced the rest of the world toward the end of 2022, according to Atlantic Council GeoEconomics Center data reported by Axios. The Reshoring Initiative, which tracks reshoring announcements and foreign direct investment, predicted repatriation and FDI representing a record 350,000 jobs in 2022, as of the release of its third-quarter data, the most recent available. Q3 reshoring and FDI rates were 15% better than the record Q1 2022 figures.

If the trend continues and the U.S. produces more of its own products, it could change the type of industrial space tenants require and the regions that see the greatest demand.

“There’ll be less need for distribution centers and more need for factories,” Moser said.

Helping drive reshoring and the creation of new manufacturing jobs in the U.S. are the billions of dollars the federal government has allocated for the production of semiconductors via the CHIPS Act. Multibillion-dollar investments in electric vehicle battery manufacturing and assembly facilities from automakers like Honda and Ford add momentum to the notion that manufacturing could take a bigger share of industrial availability.

“This phenomenon of bringing manufacturing back to the United States or setting up manufacturing in the United States is something that has started, and we think it’s going to continue, and it’s only going to continue to get bigger and bigger as time goes by,” Plymouth Industrial REIT CEO Jeff Witherell said.

That doesn’t mean industrial space for e-commerce users isn’t at a premium or Amazon is going away. The Chicago market remains near its all-time-low vacancy rate, and Amazon early last year signed its biggest U.S. lease for 4.1M SF in Southern California’s Inland Empire, a market JLL and Cushman & Wakefield both pegged at 1% vacancy as of Q4. But the Inland Empire, probably the hottest industrial market due to its proximity to the Ports of Los Angeles and Long Beach, isn’t set to benefit as much from reshoring and nearshoring as other parts of the country, nor are other population centers in the Northeast.

Boston-based Plymouth Industrial REIT is betting on a more centrally located swath of the country known as the Golden Triangle, which Chief Investment Officer Pen White defined on the REIT’s Q3 earnings call as extending from the Great Lakes to Texas, Texas to Florida and Florida back up to Chicago.

“We believe that the majority of reshoring and onshoring is going to take place in this triangle,” Witherell said.

He said it isn’t the only attractive place for industrial development and investment. But during the company’s Q4 earnings call last month, he said 90% of Plymouth’s properties are in Golden Triangle markets, a sentiment he reiterated to Bisnow in an interview last week.

Some skepticism remains around the notion that reshoring will be a significant demand driver, at least in the long run. There are the problems of a lack of industrial availability and a general sense that the U.S. labor force isn’t interested in manufacturing work.

“You have to take a look at the American worker, and … virtually every person I talk to can’t find employees,” said Hugh Williams, an industrial brokerage veteran and principal at MK Asset Management. “So if you’d rather be an Uber driver than work in a warehouse — I mean, people talk about this onshoring and nearshoring all the time, but you’ve got to get people to work.”

Williams said he expects port cities and lower-cost markets in the Southeast that can service higher-cost markets in the Northeast to continue to dominate, but reshoring could be transitory.

“As soon as people feel like disruptions in the supply chain have smoothed out and that it’s gonna cost them 8 cents less to build a chip elsewhere, you know what’s gonna happen,” Williams said.

But reshoring isn’t the only phenomenon that has the potential to spur a new wave of industrial demand. A vast transportation network of ports, railroads and interstates also sets up the South, Southeast and Midwest to benefit from nearshoring — the process of moving manufacturing operations from farther away, mainly East Asia, to North America, most often Mexico.

“Manufacturers of bulkier, higher-cost products have already embraced nearshoring,” Wulfraat said. “You don’t want to have to produce a fridge or a stove in China and ship it 25,000 miles to North America. The cost of shipping that is so high, those companies long ago migrated all of their production activity to Mexico, and then they bring it up through the main border crossings of Mexico like Laredo and Dallas. What’s happening as you go down the echelon of product types, more and more companies that have intermediate-sized products are starting to migrate their production closer to home, away from China.”

That has investors looking at distribution space between the border crossings and population centers.

“If you just look at what’s going on in the border towns in Mexico, there’s been a lot of products put up on the ground there where very little existed before, which indicates there is manufacturing going on in Mexico,” said Alfredo Gutierrez, president of Houston-based industrial investor SparrowHawk.

Gutierrez said reshoring and nearshoring, accelerated by the pandemic, have him more bullish on the Midwest and cities that have traditionally been manufacturing markets, like Detroit. States that have prioritized EV battery manufacturing include Georgia, Kentucky and Michigan, CNBC reported in January, bolstering optimism about their manufacturing potential.

Demand isn’t the only reason a tenant portfolio that includes manufacturers is attractive to investors.

“Manufacturers are traditionally “willing to go higher on rents, and they’re willing to go higher on labor than third-party logistics providers,” Gutierrez said.

“Such a dynamic should help entice owners and developers to cater to manufacturers’ needs,” Moser said. “One thing that I’m recommending to people is when you build a distribution center now, think about how to design it so that when it gets converted to a manufacturing facility, it will retain most of its value.”

 

Source: Bisnow

Developer Plans Industrial Project In Agricultural Reserve In Palm Beach County

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The owner of a plant nursery in the Agricultural Reserve west of Delray Beach wants to build an industrial project there.

Boca Raton-based 15445 US 441 LLC, owned by Dragos Sprinceana of GoldCoast Logistics, filed a privately-initiated text amendment with Palm Beach County officials concerning the 6.33-acre site at 15445 S. State Road 7/U.S. 441 and 10069 Le Reina Road. The developer assembled the property for a combined $3.9 million in 2022.

The application, titled GoldCoast Logistics, would permit about 95,000 square feet of industrial space on the site.

Accomplishing this would take several steps. First, the County Commission would need to approve the text amendment to allow “commercial” zoning north of La Reina Road along the State Road 7 corridor in the Agricultural Reserve. Then, the developer would need county approval for a land use amendment to allow commerce, instead of agriculture, on this property.

The County Commission granted preliminary approval for a measure in 2022 to allow more industrial development in the Agricultural Reserve, but only in select locations.

 

Source: SFBJ

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Cost Of Capital Has Commercial Real Estate Projects Mostly Stalled

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The rising cost of capital has stalled most commercial real estate development in 2023.

Unless projects were already underway or financing had been secured, there will be few projects started, according to John Chang, senior vice president of research services, Marcus & Millichap.

In the firm’s 2023 Construction Trends Report video, Chang said that otherwise, “builders are being pushed to the sideline.”

“The cost of capital is rising due to the Federal Reserve’s decisions to raise rates considerably, making it difficult to get a construction loan, and if you do, it’s rather expensive,” Chang said.

Loans are running 350 to 400 basis points over the Secured Overnight Financing Rate (SOFR) of 4.5%. Alternative debt financing is running between 8.75% and 10.5%.

Forecasting Growth for Key Asset Classes

Forecasting for what’s coming online in 2023, Chang said apartments are forecasted to complete 400,000 new units in 2023, growing the overall inventory by about 2.1%. Some 43% of that will be in just 10 metros.

Industrial will see 400 million square feet in 2023 for an inventory gain of 2.3%. Half of that construction will be in eight metros.

Marcus & Millichap expects 42 million square feet of retail to be completed, a “meager” half-percent of growth, Chang said, and two-thirds of that will be single tenant. Office will see 86 million square feet or growth of 1 percent and two-thirds of that will be situated in the suburbs.

Self storage should see 2.5% inventory growth – or 47 million square feet, which is well below the 73 million square feet completed in 2019. Self storage is a rare asset class where completions possibly will also grow in 2024.

“Demand drivers should begin to strengthen by early 2024 for most property types,” Chang said. “There has been relative relief in materials costs for lumber (currently 38% above pre-pandemic rates) and cement (28% above). Supply chain issues are now mostly under control.”

 

Source: GlobeSt.

The $200B Opportunity Of Industrial Outdoor Storage

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Industrial outdoor storage, or IOS, a new property type born of climbing costs for traditional industrial buildings, is rapidly becoming a darling of the more opportunistic investors in commercial real estate, with an estimated market value of $200B in the U.S.

There’s no hard-and-fast definition for what makes an IOS property, but this nebulous property type benefits from two major factors: its simplicity and its physical constraints. Its simplicity makes it easy to manage. Its physical constraints, further restricted by unfriendly zoning laws, give it an element of urgency: Either get on board now or miss the train.

Just as there’s no official name for the property type — it can be called industrial outdoor storage, industrial storage facilities or an industrial prop parking facility, for example — there’s no agreed-upon understanding of just how big this market is, or even what property types this market comprises. The same term can include truck yards, maintenance shops, storage lots for shipping containers, equipment rental and even empty lots near ports.

No matter what you call them, these properties are widely understood by investors to be an appreciating asset intimately tied to logistics and industrial sites, and one that doesn’t have much room to grow outward: Few cities and municipalities want to zone for and encourage additional truck yards.

So despite all the cloudiness, there’s clarity around the potential in buying up property with continued demand and little to no risk of significant added supply. This competition for assets could lead to a frenzy and rapidly appreciating prices, making it harder for users that need the spaces to pay rising rents.

As industrial rents rise in many markets, tenants continue to ask themselves if they can’t simply store containers or vehicles outside, Grossman said. Vacancy in IOS fell below 3% in 2022, per a Marcus & Millichap report, while rents have spiked 30% since the end of 2019, compared to 24% for industrial rents.

There may not have been a singular event that kicked off what has become a gold rush for IOS in recent months, but the industrial and logistics situation during the pandemic underscored the value of these somewhat liminal spaces. IOS’ ties to traditional industrial sites may also be a limiting factor; as the sector cools, so might demand for these assets.

There had been an intensified drive to store trailer trucks, containers and equipment, beyond longtime uses by shipping and construction. Then the need to store and supply during an intense build-up of industrial demand, as well as a push to acquire and build more last-mile delivery spaces and consolidate logistics operations as fuel prices rose, created a condition for white-hot rent growth in IOS.

Now, these spaces are seen as an inflation hedge, and deep-pocketed investors have been making significant moves to acquire larger and larger portfolios.

IOS spaces typically exist next to port, rail, airports or intermodal transport spots. This makes the map of valuable real estate more diverse: Los Angeles and Charleston, South Carolina, both with port access, as well as Indianapolis and Oklahoma City, with truck terminals and a central U.S. location, offer great assets and opportunities. Asking rents may be south of $9 per SF, but rents rose more than 12% in 2022, with forecasts suggesting the surge will continue.

They’re defined as low coverage, meaning less than 20% of the space is covered with a building, like a garage or storage space. Infill opportunities abound; Grossman leased a gated parking lot to an Amazon facility near his office in Tulsa for “more than what a building might cost,” all so the retail giant could store its vans.

Industrial Outdoor Ventures CEO Tom Barbera, who started as an industrial broker in 1993 and formed his current venture in 2016, said the fundamentals of the space have always been strong. Despite many of the tenants being national, publicly traded companies with great balance sheets, it has traditionally been overlooked because it’s not what Barbera calls a “brochure-quality industrial real estate.”

In 2021, Industrial Outdoor Ventures sold a $200M portfolio to Stockbridge. Since then, the Chicago-based firm has acquired a 78-asset portfolio worth $1B, and has plans to start expanding into the Southeast in the next year or so.

Several funds have focused on IOS specifically, partnering with large investment banks as a JV partner. Big names in the space, according to Commercial Property Executive, include J.P. Morgan Global Alternatives and Zenith IOS, which formed a $700M joint venture last February; Alterra Property Group, which closed its Alterra IOS Venture II LP with $524M in investments; and Criterion Group and Columbia Pacific Advisors, whose joint venture plans to deploy $2B by the end of the year.

With average deal size between $5M and $15M for a property, Barbera said, many of the larger investors may lack specific IOS strategies. They tend to rely on others to assemble portfolios for them to acquire, typically by buying out existing mom-and-pop owners. That’s one reason it has become such a regionalized, fragmented submarket. Expertise in the space, since it’s very niche, is often hard to come by, so lots of brokers and buyers come from retail and self-storage, which may be oversaturated, looking for the next big thing.

An industrial slowdown could begin to cool down the sector. But Pontius doesn’t see a chance of a true slowdown for IOS; even if demand for industrial significantly cools after the skyrocketing market of the last 12 to 24 months, the already increased supply of warehouses and shipping routes might actually make IOS even more sought-after as a means of handling increased logistics traffic. Worst-case scenario, investors can redevelop this space into more traditional industrial uses and find another high-performing valuable use, which in turn further restricts the supply of IOS.

 

Source: Bisnow

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Florida Land Sales Show No Sign Of Cooling Down

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Over the last few years, Florida has benefitted from tremendous in-migration, which equates to approximately 1,000 people per day moving to the state.

The trend includes not only the movement of individuals, but also employers, capital sources and developers who are expanding into the Florida market. For the first time in 65 years, Florida leads the nation in population growth.

This recent growth has been a catalyst for development, particularly in South Florida, Orlando and Tampa, which are some of the most active development markets in the U.S. In the last few years, development was primarily limited to residential and industrial, but there is renewed interest in office, hotel and retail projects. New residential developments extend beyond traditional multi-housing to build-for-rent communities, senior housing, student housing, affordable housing and manufactured housing.

As a result of the robust development pipeline, developable land is in high demand and selling at record prices. JLL’s Capital Markets team has sold more than $6 billion in land sites over the past 25 years in South Florida, $1.6 billion of which was sold in the last three years alone, demonstrating the sharp uptick in demand. In addition, compared to the broader U.S. market, South Florida / Miami land sales totaled $3.2 billion in 2022, up 49% year-over-year, while the U.S. land sale volume equaled $28 billion, down 10% year-over-year.

Some of the record setting JLL sales include the $363 million sale of 1201 Brickell Bay Dr., which is slated for Citadel’s new headquarters and 700 North Miami Avenue, a 4.7-acre site that sold for $94 million.

“We’ve really seen an uptick in non-traditional real estate owners monetizing their land holdings as well – groups such as schools, religious institutions and non-profits,” said Maurice Habif, Managing Director, JLL Capital Markets. “They see the record setting prices others are getting for their properties and realize they can fund more of their goals and missions by monetizing their land holdings. It’s been really fulfilling working on behalf of the non-profit organizations, and we look forward to seeing this trend continue in the near term. Land is only becoming more and more coveted throughout Florida and that demand should continue for the foreseeable future.”

“Florida really is experiencing phenomenal growth on all fronts,” added Simon Banke, Senior Director, JLL Capital Markets. “With more than 1,000 new residents moving to Florida every day, the state currently leads the country in population growth. Now, for the first time in forty years, Florida boasts more jobs than New York. Investors are acutely aware of these trends and hyper focused on investing in our market. In addition to a wealth of developers and capital providers that are already active in the state, we are speaking with new investors that want to be in Florida on a daily basis.”

 

Source: MarketScreener

Why Outdoor Storage Is The Hottest New Play In Commercial Real Estate

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The nine-acre truck depot in Kearny, New Jersey, wouldn’t appear to fit anyone’s definition of prime real estate.

The site is surrounded by a tangle of major highways that are often clogged with traffic, abuts a rail yard packed with clattering freight cars, and is just down the street from one of the most polluted landfills on the northern New Jersey waterfront.

To Andy Smith, a managing director at Brookfield Asset Management and the global head of its logistics investments, the parcel, located less than 10 miles outside of New York City, was as attractive as any of the top-tier properties his company owns. This past December, Brookfield paid a little more than $67 million to acquire the site at 1100 Newark Turnpike, which it plans to continue to operate as a terminal for trucks.

“I’m not sure if someone driving down the highway would look out and think, ‘Hey, that’s an immaculate truck terminal,'” Smith conceded. “But as crazy as it sounds, it’s fantastic real estate.”

Brookfield’s portfolio is still headlined by blue-chip real-estate assets such as the Manhattan West mixed-use complex in New York City, where major office tenants, like the law firm Skadden Arps, base their operations, and Canary Wharf, a similarly large-scale London property with a mix of office, retail, and residential space. But the development and investment firm, whose global real-estate portfolio includes $260 billion of property, has also amassed about $500 million — and counting — of industrial land sites across the country since 2018.

Brookfield is one of several big-name investors that are paying increasing attention to lowly industrial land. Recent buyers include the financial firm J.P. Morgan Asset Management, the private-equity players Fortress and Cerberus, and real-estate-focused investment giants, including Brookfield and the San Francisco-based firm Stockbridge.

Industrial land is used for a range of purposes, such as parking trucks and buses, storage for bulky equipment like cranes, cherry pickers, and bulldozers, and a place to stage heavy goods that can weather exposure to the elements including gravel, lumber, or shipping containers. The interest in industrial land reflects the growing recognition that these sites are as essential as they are ordinary, providing key infrastructure for the delivery of goods and services to large swaths of America.

Such land has been around for as long as the country has had heavy industry. What’s new is the rush of major investors who see a lucrative opportunity to corporatize a niche of the real-estate market that is still overwhelmingly owned by an array of small businesses and individuals. The segment has even been rechristened with a more sophisticated-sounding moniker: industrial outdoor storage, or IOS.

Investors estimate there’s at least $200 billion of industrial-outdoor-storage land across the country, a sizable enough market for years of investment to come. IOS sites have caught on as an unlikely institutional-caliber asset as other more established areas of the real-estate-investment market, like office buildings and retail space, have been upended by the growing popularity of working from home and online shopping.

There’s A Shrinking Supply Of Industrial Land  

Another factor that has helped ignite interest in this unheralded corner of the industrial market is the fact that outdoor-storage sites are a disappearing commodity, driving up rents and their value.

That’s especially true in northern New Jersey (just outside New York City), Los Angeles, the San Francisco Bay Area, Seattle, and other major cities across the country, where land is scarce, populations are large, and transportation infrastructure like highways, cargo ports, rail links, and airports abound. In these places, industrial areas have been whittled down for decades by demand to convert those districts to other uses, such as residential and commercial space.

More recently, a boom of warehouse construction has cut into the already-shrinking pool of outdoor-storage land. A record 446 million square feet of warehouse space was finished last year across the country, according to CBRE. The huge volume of new warehouse development has not only thinned the number of remaining outdoor-storage sites, but also created additional demand for it.

“Many warehouses just weren’t designed for the parking, storage, and staging requirements that come from the enormous throughput of goods traveling in these spaces today and the speed at which they’re moving,” said Matthew Pfeiffer, a managing partner at Alterra Property Group, which invests in IOS sites. “That has created increased demand for outdoor-storage needs that benefits us.”

Pfeiffer, for instance, said that Alterra, which was founded in 2017 in Philadelphia, is in the process of negotiating a lease for an 11-acre site in South Florida next to a new warehouse that was recently leased by a large shipping and logistics company. The shipping and logistics company, he said, realized its warehouse operations will require additional parking capacity on Alterra’s site. Pfeiffer said he couldn’t yet disclose the details of that transaction, including the location of the parcel or the identity of the players involved, because the deal is ongoing.

Investment In Industrial Is Just Taking Off 

Buyers of these parcels see a supply-and-demand imbalance that is likely to persist and generate profits for years to come.

“There’s only so much land that’s zoned for industrial uses,” said Dan Haroun, who cofounded the Manhattan-based IOS investment firm Catalyst Investment Partners in 2021. “And these municipalities aren’t going to create more of it.”

Outdoor-storage sites are different from many other real-estate assets in that they need little in the way of capital upgrades and maintenance to prevent them from becoming obsolete. Industrial land also generally has lower operating costs and taxes compared to other real estate.

Haroun said tenants pay a wide range of rents that often depend on the specific attributes and location of a site. IOS space can cost just a few thousand dollars per acre per month in smaller markets, he said, up to $60,000-$70,000 for well located sites in large, space constrained urban areas.

IOS sites are not always completely vacant, but are generally defined as having 30% or less of their land area covered by a building or structure. Brookfield’s Kearny truck terminal, for instance, has abundant parking, but also a long, narrow building that allows goods to be unloaded and transferred between truck trailers.

It’s Hard To Find Big Enough Portfolios Of Industrial Land 

There are challenges, too, in breaking into the business of owning industrial land.

Unlike Brookfield’s transaction, most IOS sites are under $10 million, investors said, making it work-intensive to amass portfolios of the dollar scale substantial enough to attract institutional capital.

Fortress has compensated for that by acquiring properties at a rapid rate, purchasing 80 properties in the past 18 months, “one of the fastest acquisition pipelines in the IOS market,” said Greg Pearson, a managing director at the firm who helps manage its IOS acquisitions. The investment firm has bought roughly $1 billion of outdoor-storage sites over the past two years in Los Angeles, the San Francisco Bay Area, and Seattle. Pearson said he expects the firm to “remain active,” buying up more IOS land in the coming year.

Others have found ways to buy at scale. Alterra, for instance, closed on an $86 million purchase of 14 outdoor-storage sites in December that were sold by the trucking company Heniff, which plans to continue to lease and occupy the properties. But Alterra has also built up its capacity to handle a larger volume of smaller IOS deals. The 75-person firm now has a 20-person investment team dedicated to IOS alone. It raised a $500 million fund for IOS investment in 2021 and is in the process of launching a follow-up vehicle that will be larger in size.

Catalyst, with a 10-person team, raised a $55 million fund in 2021 and is now raising a second fund that will be about $130 million, Haroun said. While the first fund was made up of mainly high-net-worth investors, the second will have larger-sized contributors, such as “pension funds and endowments,” Haroun said, a sign of the growing eagerness among institutional investors to partner with specialists who focus on IOS and can manage the transactional volume.

Zenith IOS, another outdoor-storage-investment firm that’s based in Brooklyn, struck a $550 million joint-venture deal with J.P. Morgan Asset Management in 2021 and is in the process of deploying that capital. So far it’s spent about $350 million of that and this year plans to use the remaining $200 million. Combined with financing, it expects to purchase roughly $600 million worth of IOS deals this year, Benjamin Atkins, the firm’s CEO and cofounder, said.

Atkins said he has been impressed by the robustness of the IOS market, even with fears about the broader economy. Zenith is currently in negotiations, for instance, to lease 8280 NW 80th Street, a three-acre site it purchased last summer in Miami for $9.1 million, to a logistics company that would use it for storage and vehicle parking.

“We’ve been looking for signs of weakness as other areas of commercial real estate slow down, but in IOS we’re not seeing it,” Atkins told Insider.

Zenith has such an appetite to expand its industrial-outdoor-storage portfolio that Atkins used Prologis, one of the world’s largest owners of warehouse space, as a benchmark for his ambitions.

“We want to be the Prologis of dirt,” Atkins said.

 

Source: Business Insider

Westgate/Belvedere Homes Community Redevelopment Agency Could Partner With Developer To Build Mixed-Use Project

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The Westgate/Belvedere Homes Community Redevelopment Agency (CRA) could partner with a developer to build a mixed-use project about 10 blocks north of Palm Beach International Airport.

The Palm Beach County Zoning Commission will consider plans for Westgate Terrace on Feb. 2. It would be located on the vacant site of two acres at the southeast corner of Westgate Avenue and Seminole Boulevard. The CRA owns six of the seven parcels there. The remaining parcel at 2634 Westgate Ave. is owned by Danza of Westgate LLC, managed by Charles Lesnick in Wellington.

“The CRA wants to redevelop the Westgate Avenue corridor by cleaning vacant lots and demolishing dilapidated buildings to create a safer and more vibrant area where people can live and work,” said Elizee Michel, executive director of the CRA. “It is a mixed-use mixed-income proposal that provides office space, workforce housing and modern architecture to lift up the area economically and esthetically.”

Rising four stories, Westgate Terrace would feature 46 apartments, a 5,600-square-foot office for the CRA and 5,015 square feet of medical offices. Michel said that would include 10 apartments for workforce housing, with two of them set aside for disabled veterans.

“The developers are currently working on financing the construction,” Michel said. “Depending on the amount of government funding they receive, the majority of the units will either be affordable or workforce housing. The units, even if they are not all income restricted, will be made affordable to middle-class earners to help address the shortage of affordable housing in Palm Beach County.”

The developer is seeking a waiver to allow an entrance into the project from Nokomis Avenue with a 40-foot right-of-way, instead of 80 feet as required by county code. Aaron M. Taylor of Belle Glade-based Arc Development Global represents the CRA and the developer in the application.

 

Source: SFBJ

Duo To Bring 250K-SF Industrial Development To Commerce Park In Jupiter

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Woodmont Industrial Partners and Butters Construction & Development have begun construction on a 250,000-square-foot warehouse logistics facility located within the Palm Beach Park of Commerce in Jupiter.

The property will sit on a 16-acre site that was purchased by Woodmont Industrial Partners and Butters Construction & Development in December 2021. The facility will feature 36’ clear height with 48 dock doors, two drive-in doors and ample automobile parking spaces. Completion is expected in Q2 2023.

Christopher Thomson of Cushman & Wakefield will serve as leasing broker for the property.

The 1,300-acre master-planned Palm Beach Park of Commerce offers rail service, foreign trade zones, heavy industrial options and access to Interstate 95, Bee Line Highway and the Port of Palm Beach.

Woodmont Industrial Partners and Butters Construction & Development currently have eight additional parcels in the Palm Beach Park of Commerce slated for development in the next 24 months that over 1.6 million square feet.

 

Source: ConnectCRE

The Buildup And Outlook For Florida’s Industrial Market In 2023

Industrial assets built throughout Florida between 2015 and 2022 have led to record-setting development totals never before seen in the state’s history.

One key measurement of the success of new supply is property stabilization rates. (Assets are considered stabilized once 90 percent of the building is leased.) Over the past five years, Jacksonville and Miami ranked as the top two markets in Florida to stabilize in the shortest period of time. Jacksonville leads the state with an average of 1.6 quarters to stabilize, while Miami trails shortly behind, averaging 2.1 quarters. The Tampa market rounded out the top three with an average of 2.7 quarters.

Florida began preparing for the industrial boom over a decade ago, adding infrastructure growth projects at the ports and rail transportation in preparation for the expansion of the Panama Canal. That, coupled with the unforeseen and expedited rise of e-commerce as a result of the global pandemic starting in 2020, pushed industrial into the spotlight of the commercial real estate industry. Since then, Florida’s robust population growth, coupled with its pro-business and low tax policies, have catapulted record demand, booming development, and limited supply of available industrial space in key markets.

The Buildup Since 2015

Industrial developers have taken advantage of the strong economic benefits. Statewide the leaders in this category include Prologis, McCraney Properties and Flagler Real Estate. Since 2015, Prologis has delivered 36 buildings totaling 7.9 million square feet — the most in the state. Primarily focused on South Florida, the company has achieved 24 deliveries totaling 4.5 million square feet in the region.

Prologis also leads in total acquisitions of industrial properties (in addition to its acquisition of Duke Realty’s portfolio), with Blackstone and McCraney trailing closely behind. Foundry Commercial is another active buyer, with a major focus on the Orlando market. With more 2023 deliveries arriving in the coming months, these buyers will likely continue to scoop properties off the market to add to their investment portfolios.

Florida construction activity also remained strong at the close of 2022, with more than 23.1 million square feet of industrial assets underway throughout the key markets, of which approximately 31 percent is already preleased. The Miami market leads the charge with fully half of its 4.2 million square feet under construction already preleased.

At the end of the fourth quarter of 2022, all Florida markets maintained their high occupancy rates with an average of only 3 percent vacancy across the state. The high level of leasing demand positions Florida as a top contender among the Southeast. Remaining available space under construction continues to be a necessity as limited supply persists and magnifies the need for a large quantity of industrial space to enter the construction pipeline.

Expectations For 2023

Following the records set during the industrial boom, we are entering a more leveled-off market starting in 2023. These slowdowns are no cause for concern and are a natural correction to the abnormal market activity we have experienced over the past few years. Looking ahead, we can expect more leveled-off activity across the state of Florida with slight growth happening in markets such as Miami and Jacksonville.

Jacksonville has been on an upward trend for many years, and the start of 2023 indicates that it should continue. The market is projected to deliver over 8 million square feet of industrial space in 2023, and the current tenant demand indicates that the majority of the new space will be full by the end of the year.  Rental rates will most likely increase as a result, but still be the cheapest option in Florida, making the northeast part of Florida an attractive option.

In Central Florida, tenant demand remains robust despite economic headwinds. Over 14 million square feet of demand from tenants is being tracked, which far exceeds the available supply, indicating that rental rates are likely to rise there as well.

Finally, in the South Florida metro area, scarcity of well-located developable industrial land, strong lease absorption and rent growth statistics, as well as the continued influx of new residents to the state and region, will help ensure the further stabilization and healthy growth of the industrial market.

 

Source: Commercial Observer

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Two CRE Signals To Watch This Year

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With uncertainty and market readjustments being some clear watchwords for 2023, knowing how and where to pivot becomes both necessary and challenging.

A recent Hines report noted that investors, owners, and operators can’t completely rely on what happened in the past because every cycle has its own quirks.

“Recognizing what is different and what may at least rhyme with previous cycles can provide insight into how to navigate what is both challenging, as it relates to existing holdings, and opportunistic, as it relates to the potential to deploy capital in a more sober and attractive pricing environment,” the firm wrote. “All parts of the cycle require a bit of both defense and offense.”

Two factors at work are upward pricing pressure of financing (if it’s available at all) and the “shortage of broader seller capitulation thus far,” which GlobeSt.com has also described as a lack of current price discovery. Defensively preserving capital and looking for opportunities will vary by global geography.

In the US, “commodity Class A office appears fairly illiquid at the close of the year, but bidding pools remain healthy in the industrial and multifamily markets, albeit thinner than at the start of 2022.”

There are two broad signals that Hines suggest watching. First is changes in transaction volume.

“With a longer time series of transaction volume in the U.S. spanning multiple cycles, we can observe the historical relationship between volume and price growth,” they wrote. “Unfortunately, the relationship is concurrent rather than predictive but the stabilization of transaction volume and subsequent increase during past cycles has been a good sign that prices found a bottom and should begin to rise if volume continues to rebound.”

Which makes sense. Given what GlobeSt.com has heard from multiple sources, with a lot of capital waiting on the sidelines ready for deployment, there’s already anticipation that transaction volumes could start changing soon. But that will likely vary significantly by region, just as markets do. Rather than settling for an eye on national transaction volumes, a focus on regional ones is more likely to give an indication whether specific markets are likely to offer an opportunity.

The second signal: rising availability of traditional debt.

“In the third quarter, the Federal Reserve’s Loan Officer Survey (from which 2022 data is derived) showed that 50% of survey respondents reported tighter underwriting standards for commercial real estate loans, comprised of 57.6% for construction and land development loans, 52.9% for non-farm, non-residential loans, and 39.7% for multifamily properties,” they wrote. “All three categories recorded a significant increase from a year ago when banks reported they were loosening their standards in the second half of 2021.”

 

Source: GlobeSt

Easton Group Breaks Ground On Riviera Beach Warehouse With $12M Loan

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An affiliate of Easton Group broke ground on a warehouse near the Port of Palm Beach in Riviera Beach after obtaining a $12.13 million construction loan.

Rosemont, Illinois-based Village Bank & Trust provided the mortgage to SFG ISF Riviera MLK LLC, a partnership between Doral-based Easton Group and Atlanta-based Stonemont Financial Group. It covers the 8.9-acre site at 1463 Dr. Martin Luther King Jr. Blvd.

Davie-based Excel Construction of Florida recently filed notice with the county that it started work on the stie. The warehouse will total 34,500 square feet, including 3,000 square feet for office space.

The developer purchased the site for $6.5 million in 2021.

 

Source: SFBJ

Industrial Vacancies Drop, Rents Increase Despite Record New Supply

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Industrial real estate rents increased and vacancies continued declining through November of 2022 despite a record amount of new supply hitting the market, according to the latest U.S. industrial market report from CommercialEdge.

Released just before Christmas, the report found that rents on in-place leases rose 6.5% nationally year over year, while the national vacancy rate dipped to 3.8%.

The new development pipeline also continued to increase, overcoming inflation-driven backlogs and bottlenecks along the supply chain. There were 742.3 million square feet of industrial space under construction as November ended, CommercialEdge reported.

Port markets led in November in both new leases and in-place rent growth. In line with trends seen in the past two years, Southern California in-place rents have climbed at the fastest rate, driven by double-digit growth in the Inland Empire and Los Angeles. On the East Coast, Boston and New Jersey saw the strongest rent hikes.

 

Source: ConnectCRE