The United States Postal Service has started moving into a 136,000-square-foot industrial building in the Rock Lake Business Ccenter in Pompano Beach that was once slated for use by Amazon.
Developed by Atlanta-based IDI Logistics, Rock Lake Business Center consists of two buildings that were built in 2021 and total 250,000 square feet of industrial space. The building that USPS moved into was originally intended for Amazon. However, the structure was among numerous locations across the nation that Amazon opted not to use when the company announced it was shrinking its physical footprint in 2022.
Now dubbed the Pompano Beach Sorting and Delivery Center, the Rock Lake building will consolidate letter carrier operations for five post offices in Broward County.
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The industrial sector kicked off the year with surging demand outpacing supply for the first time since the first quarter of 2019 and record-high rents hovering at $6.90 per square foot nationally, according to a new report by Cushman & Wakefield.
The first quarter of 2021 showed market absorption of 82.3 million square feet (msf), the most space ever absorbed in a first quarter of any year reported by Cushman & Wakefield and a number thatâs up 78.2% over the 46.2 msf reported in the same period last year. Warehouse and distribution space was the strongest secondary property type with 77.9 msf of net absorption, according to C&W data, with manufacturing and high-tech space also ending the quarter strong.
Positive absorption was noted in 62 of the 81 markets tracked by the firm, and 23 markets posted more than 1 million square feet of positive net absorption. Of those, the Inland Empire, Houston, Atlanta, Dallas/Fort Worth, Chicago, Central New Jersey, Milwaukee, Detroit, Phoenix and Columbus accounted for 56.4% of all new completions.
Demand also remained strong, with new leasing activity surpassing 100 msf for the 21st consecutive quarter and clocking in at 193.8 msf, a slight uptick from last quarterâs record high of 194.2 msf. About 87% of all new leasing activity across all industrial product types was centered in the logistics space.
âThis level of demand is putting the market on pace to see another year of new leasing activity surpassing 600 msf by year-end, which happened for the first time ever in 2020,â the report notes. âAmong the key drivers stimulating robust demand are digital sales, sparking more e-commerce leasing, as well as third-party logistics providers that occupy warehouse/distribution space.â
Until the first quarter of 2021, supply had steadily outpaced overall demand for two years, but Q1 saw that flip, with demand surpassing supply by more than 15.8 msf, which rebalanced the market and drove vacancy down.
Cushman & Wakefield analysts predict solid demand for industrial space will continue in 2021, with net absorption predicted to again surpass 200 msf in 2021 and annual new supply outpacing annual demand.
In particular, âindustrial supply is likely to produce around 30% more space than can be absorbed, bringing quality space to the market for occupiers to consider,â the report notes. âNew supply will place upward pressure on overall vacancy in the next couple of quarters with the rate rising 30-to-50 bps to between 5.2% and 5.4%.â
The firm also predicts asking rents will continue to increase year-over-year, âbut new supply and more modest demand will be headwinds that moderate the pace of overall rent growth for the year,â according to the report.
Industrial was CREâs best-performing asset class in 2020, according to Moodyâs Analytics, with 40 straight quarters of positive net absorption reported at yearâs end, thanks largely to a dramatic uptick in e-commerce sales and fulfillment. Moodyâs predicts that as vacancy rates decline steadily over the next five years, effective rents will rise by 1.4% in 2022.
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U.S. commercial real estate is a likely winner in the evolving Republican tax overhaul, which is poised to lower rates for property owners, spur new investment and increase demand for rental housing, according to a new report.
Owners and developers of commercial real estate stand to gain from a new tax break for âpass-throughâ entities, which donât pay corporate tax but instead pass income through to their ownersâ individual tax returns, according to the report, by Cushman & Wakefield Inc. The House and Senate have reached a tentative agreement to create a 20 percent deduction for pass-throughs, which the report notes are responsible for 61 percent of investment in U.S. commercial real estate.
Itâs not as big a boon for the industry as it might have been. The House bill passed last month slashed the top tax rate on pass-through income to 25 percent from a current top rate of 39.6 percent. That would have been a âhuge win,â said Revathi Greenwood, head of Americas research for Cushman & Wakefield.
The Senate bill has tied the new deduction to the amount of wages the business pays, said Greenwood, meaning larger savings for ownership structures with more employees, such as real estate investment trusts. Itâs unclear whether the House-Senate compromise retains that provision.
Representatives of the two chambers are meeting this week to reconcile their versions of the legislation, setting the stage for President Donald Trump, who made his fortune in commercial real estate, to sign a bill into law as early as next week.
In the weeks since the House of Representatives unveiled its tax plan, on Nov. 2, housing experts have warned of its potential effects on the U.S. housing market. Proposed changes to the treatment of mortgage interest and state and local taxes could reduce incentives for buying a new home. Potential effects on commercial real estate have gotten less attention, perhaps because the industry doesnât have much to complain about.
Opportunity for Malls
Still, not every sector will benefit equally. The tax plan should favor residential landlords, the report said, with the tax benefits of homeownership curbed. It is also likely to benefit retail landlords by lowering taxes on companies that rent space and leaving consumers with more discretionary income to spend.
âMall operators are looking at restructuring anyway, remaking their properties to give shoppers experiences they canât get online,â Greenwood said. âWe think some of the money saved in taxes will be reinvested back into the business. Office landlords are likely to see more-modest gains. While corporate tenants are key beneficiaries of the tax plan, theyâre likelier to return tax savings to shareholders than to increase spending. The tax overhaul could benefit the office sector by discouraging companies from moving their headquarters abroad to save on taxes. Health-care companies are likely to pare back investment in real estate.â
Thatâs partly because a Senate provision to repeal Obamacareâs individual mandate could curtail demand for services, and partly because both the Senate and House bills reduce exemptions for charitable gifts, which are often used to fund the construction of new hospital buildings.
Click here to view the Bloomberg news video ‘House, Senate, Said To Reach Tentative Tax Deal’
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