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Despite an undeniable slowdown in 2023, optimism still permeates Miami’s commercial real estate sector — buoyed by the Federal Reserve‘s recent signaling that rate cuts are on the horizon.

“The problem is not South Florida real estate,” said Arnaud Karsenti, managing principal at 13th Floor Investments. “We’re probably way better off than our peers around the rest of the country.”

The city has settled into a new normal and is positioned to see continued growth in 2024 despite challenges in office supply, multifamily dynamics and construction costs, nearly a dozen industry insiders told Bisnow in interviews this month.

“Out of all the markets we’re in, and we’re at a decent amount across the country, South Florida is far and away the healthiest,” said Ryan Shear, managing partner at PMG.

The rapid growth spurred by the pandemic — with corporate behemoths from Citadel to Microsoft moving to the region and an influx of $7.4B in wealth in 2022 — has slowed, but it remains the driving force behind the city’s expansion.

Investment volume has also tailed off, but the latest signal from Fed Chair Jerome Powell that 2024 could see as many as three rate cuts has buoyed the expectation among investors, developers and brokers that Miami will see an increased flow of capital next year.

“2023 was a throwaway year,” said Michael Fay, managing director of Avison Young’s Miami office and chairman of the brokerage’s U.S. Capital Markets Group Executive Committee. “People are looking for reasons to be back in the market and looking for opportunities, but to do that they need to have rates participate in that look.”

‘We Feel Like We’re At The End Of The Cycle’

Miami was far from immune to a rate-driven slowdown. The office sector saw 12 transactions through the first three quarters of 2023, compared to 26 deals over the same period a year prior. But even as volume plummeted, the sales that closed signaled confidence in the market, with the price per SF dipping only slightly from 2022 and outperforming 2019, before the pandemic helped boost the city’s profile.

Investors and brokers told Bisnow deal volume across all asset types is poised to rise again next year. But there is some debate as to when capital will begin flowing more freely, with some expectation that any rate cuts from the Fed will take time to percolate down to banks and loan originators.

“A lot of us are expecting some rate decreases in the first half of next year, which will lead to a more attractive forward curve,” Karsenti said. “Banks will start to lend on that curve and will ultimately provide loans at lower rates.”

The presidential election in November is likely to increase the political pressure on the Fed, said Fay, who described rate cuts as “candy” for the market. He said the beginning of 2024 will likely see a few deals before deal volume picks up in the back half of the year.

“We feel like we’re at the end of the cycle,” Fay said. “We’re hopefully going to be at a point that will mark stability. When you have stability and clarity, people can price in risk in a much better way.”

Investors across the country are raising billions of dollars to target distressed assets facing loan repayment hurdles, especially in the office sector, where an estimated 44% of properties have more debt than value at this point.

But South Florida’s office market has been an outlier to national turmoil, with Miami, Fort Lauderdale and Palm Beach all among the top five markets for annual rent growth through October. South Florida office asset values are expected to grow in 2024, according to CoStar, while most of the country is still in correction mode.

Miami’s apartment market is also ranked as the most competitive in the country, with a 97% occupancy rate and the fifth-highest rents in the country.

The $5.5B in CMBS loans on South Florida properties set to mature in 2024 account for only around 5% of the national total, according to CoStar. Falling interest rates are expected to spur acquisitions, but assets trading in South Florida are unlikely to be facing debt challenges.

“I am concerned that rates are going to come down and everybody that’s been on hold, waiting and delaying, they’re all going to try to run through the same gate at the same time, which will just drive prices right back up,” Shear said.

‘They’re Not Massive HQ Moves’

Office buildings in Miami are forecasted to grow in value in large part because the pandemic-era leasing boom has waned, but not abated.

“There’s around 3.8M SF of pent-up office demand among tenants touring in Miami,” said Tere Blanca, the CEO of Blanca Commercial Real Estate.

Around 20% of those companies are new to the market with much of the remaining activity being driven by firms that opened offices in Miami during the pandemic that are now looking to expand their footprint.

“Every lease that we do today in our existing buildings, that’s a record for the highest rate in that building,” said Brian Gale, vice chair at Cushman & Wakefield in Miami. “I think office rents could rise another 25% in 2024.”

Office development remains the third rail of real estate investment, even in South Florida where the sector has continued to perform well. Few new office developments are expected to break ground next year, leaving tenants that are engaged in an ongoing flight to quality with limited options for space.

Miami had 1.6M SF under construction at the end of the third quarter, according to Blanca, half of which is the fully leased 822K SF 830 Brickell tower.

“The lack of new construction will hinder leasing activity next year with the new-to-market tenants pausing and sitting on the sidelines because the new product is not in place,” Blanca said. “For a new office project to get financing, lenders often want to know an anchor tenant has signed on, and the companies currently in the market are generally looking for spaces ranging from 5K SF to 20K SF. A lot of these deals are not getting done, because they’re smaller transactions than the Citadels of the world,” Blanca said, referencing the 90K SF lease the hedge fund signed at 830 Brickell last year. “They’re not massive HQ moves.”

‘I Can’t Imagine A Multifamily Project That Would Pencil Out’

Apartment development is also expected to face headwinds in 2024. Rent growth has tapered off amid a wave of new supply — there are around 30,000 luxury apartments alone under construction in Miami — and cuts to interest rates won’t be enough to offset the high cost of construction, developers told Bisnow.

“I can’t imagine a multifamily project that would pencil out, and I can’t imagine a lender that’s going to lend money to multifamily,” said Armando Codina, executive chairman of Coral Gables-based developer Codina Partners. “That space is going to go down significantly.”

The state-level effort to spur apartment construction through the Live Local Act generated a wave of interest, but those proposals are also facing financial hurdles. The law created tax abatements and other incentives for projects with at least 40% of units set aside for workforce housing, but those tax savings have so far been outweighed by the high cost of debt and construction.

“In the meantime, the projects that are expected to move ahead are those near mass transit stops, which can leverage county-level zoning to achieve the needed density to make projects financially viable,” said Iris Escarra, co-chair of the land use practice at Greenberg Traurig.

Miami-Dade County has been adding to its Rapid Transit Zones as it encourages the use of rail and bus lines to alleviate growing traffic congestion and increase density around transit stops before an expected push for federal funds to expand the rail system.

“There’s always a chicken or an egg with transportation and rail lines,” Escarra said. “For the county to extend the line north, for example, they need to show that there’s enough density on the line to qualify for federal dollars.”

“Condo development, by contrast, has remained attractive for developers. Financing for condos can be easier to secure because the deposits on units that are pre-sold can offset the size of construction loans and the shorter-term investment horizon is more attractive for lenders,” said Edgardo Defortuna, CEO of Miami-based developer Fortune International Group.

Condo sales have declined from pandemic highs, but the buyer pool has been boosted by international interest extending beyond Latin America. Many buyers see the purchase of a pre-construction condo at today’s pricing as a hedge against inflation and a way to avoid today’s high cost of debt.

“In a way, they have the best of both worlds, protection against inflation because they’re fixing the price, and also potentially getting lower interest rates when they need to close on their acquisition and finance,” Defortuna said.

Contractors ‘A Little More Hungry’

A slowdown in new development this year has reduced some of the upward price momentum on construction. With fewer projects breaking ground, developers said they have regained some leverage in negotiations with construction firms and contractors, even though material prices remain high.

“The numbers have gotten better but, even more important, I’m seeing the contractors being a little more hungry,” Codina said. “I’ve had [subcontractors] a year ago say to me, ‘I don’t want to bid unless I’m going to get the job, I’m too busy.’ Now, we’re breaking ground because we’ve seen a little bit of a different attitude.”

Jay FayetteSuffolk Construction’s president for the east coast of Florida, has seen the number of proposals coming across his desk decline but said he still expects to have a busy year as his firm moves through a backlog of projects that have been waiting to begin construction.

“We’re going to be very busy, and busier than last year,” Fayette said. “But that’s not necessarily due to the abundance in the market, it’s really due to the abundance that we had in the pipeline that we’re finally getting shovels in the ground. The shortage of workers that has plagued the construction industry is expected to continue, and Suffolk is investing resources into worker recruitment and retention to try to offset some of the challenges.”

Raw materials like wood and concrete have become more available, but switchgears, the backbone of a building’s electric system that became difficult to source during the pandemic, remain one of the largest hurdles for new construction.

“We don’t dare tell an owner it’s less than 65 weeks” to secure switchgears, Fayette said.

Construction costs have also begun to stabilize, but a crowded development pipeline in the region means strong demand for materials will keep prices from falling significantly in the year ahead.

“I think there is a world where construction costs come down. I can’t say that it’s in the Southeast region,” Fayette said. “We’re in nine regions nationwide, and we are seeing some softening of construction costs in other regions, but the state of Florida is a robust construction market.”

 

Source: Bisnow

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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There was a whirlwind of real estate deals in 2021 and most of 2022 as billions of dollars flowed toward the purchase or development of South Florida properties.

That steady pace of dealmaking was fueled by an influx of wealthy people, well-paid professionals, and businesses who relocated from other parts of the U.S. to Florida due to its decent weather, low taxes and business-friendly environment.

Today, that migration is still ongoing. However, higher interest rates and growing concerns of a nationwide recession have noticeably cooled South Florida’s red-hot economy. Still, the state’s population continues to grow, which has, in turn, kept the economy humming.

Meanwhile, the tri-county region remains a favored destination for the rich to invest and live in.

To discover about how these trends are affecting South Florida’s residential, office, retail and industrial real estate markets, now and into the future, the South Florida Business Journal gathered a panel of experts for its ninth annual Market Review panel event at the ArtsPark Gallery in Hollywood.

Moderated by Business Journal Real Estate Editor Brian Bandell, the panelists discussed how high interest rates and inflation have affected some property sectors and not others, whether the state’s continued population growth will make it less susceptible to a national recession, and other key topics. The two-hour discussion was sponsored by Berkowitz Pollack Brant Advisors and CPAs, Stiles and the city of Hollywood.

High Interest Rates

The panel launched with experts discussing one of the main drags on the region’s real estate market: higher interest rates.

Noah Breakstone, CEO of Fort Lauderdale-based developer BTI Partners, said interest rates started at 3.25% in January and have climbed to about 7%.

“It’s had a serious impact on purchasing power for single-family home buyers, for condo buyers throughout the market, and we are going to continue to see that effect,” Breakstone said.

Art Lieberman, director of tax services for Miami-based Berkowitz Pollack Brant Advisors + CPAs, agreed, adding that he’d seen a consistent slowdown in property transactions in recent months.

“And there is a good reason for that,” Lieberman said. “Financial leverage is turning either even or upside down.”

The rise in interest rates has created a “bid/ask spread,” in which sellers and buyers are reluctant to compromise on the price of real estate assets. That’s caused transactions to slow down, if not stop altogether.

“A lot of my clients are projecting no property sales for at least three months,” Lieberman said.

As for office deals, they have “come to a screeching halt,” said Brett Reese, managing director of Boca Raton-based CP Group, one of the largest office landlords in Florida.

“Deals we are still trying to make happen involve the seller offering financing … or they have an existing mortgage that we can assume,” Reese said. “Absent that, it is virtually impossible to make the deals work today.”

High interest rates, high capitalization rates and sellers not willing to compromise on price have contributed to the office deal slowdown.

“The other issue we come across is public markets,” Reese said. “The REITs (real estate investment trusts) have traded down or sold off so badly that their valuations are bleeding into the public market a lot faster than private markets.”

High interest rates and cap rates have slowed retail transactions, as well, said Nicole Shiman, senior VP of Edens, a Washington, D.C.-based retail owner and operator. On top of that, consumers nationwide are being squeezed by inflation. Nevertheless, retail has already faced adversity.

“Retail has been experiencing broad-based headwinds for a number of years, with e-commerce and Covid being the most significant stress tests imagined on retail,” Shiman said. “So, retail has fared a lot better than a lot of its piers from an interest rate perspective.”

Michael J. Stellino, senior managing director of development for Elion Partners, a North Miami Beach-based investment management firm that focuses on industrial real estate, said high interest rates have affected its business. But the industrial sector is doing fine.

“The ray of sunshine is that we have seen a lot of interest in the capital markets,” Stellino said. “Pension funds really have shown a positive commitment to industrial. It still feels like this is an asset class that has a long way to go.”

The Trillion-Dollar State

Harvey Daniels, VP of sales for Miami-based Fortune International Group, a broker and developer of high-end condominium projects, said high interest rates have hardly impacted the luxury residential sector. His customers pay cash directly to the developer over a period of four or five years.

“When you are dealing with the ultra-high-end luxury market, it is like, ‘What is a mortgage?’ You just don’t hear about it,” Daniels said.

And his clients are willing to pay record prices for a luxury residence, especially if it comes with an ocean view.

“I have been doing development sales for 30 years in South Florida, and I can tell you there are some of the most expensive projects coming online that South Florida has never seen before,” Daniels said. “Prices per square foot are exceeding $5,000. Somebody just sold something at preconstruction at $7,500 a foot. The reality is, they are coming here and they are buying here. And when that money comes here, the other things come.”

Bandell asked the panelists if the state of the national economy could slow down luxury buying in South Florida.

“Look, I have been hearing this for a long time, but we are in a bubble,” Daniels said. “We go up high and we go low fast. It is what it is.”

With 800 people a day moving to Florida, the state will continue to prosper, Berkowitz Pollack Brant’s Lieberman said.

“They have to live somewhere and work somewhere and play somewhere,” Lieberman said. “So … there is going to have to be increased building.”

In 2020 and 2021, more money migrated to Florida — about $24 billion — than any other state in the U.S., Edens’ Shiman said.

“Texas is next on the list, and they had $6 billion,” Shiman added. “We are talking about three or four times more than anywhere else in the country. And retail is in a great position to capture much of that cash flow. If you have significant wealth migration, you have more consumers with disposable income who can spend and that really drives retail sales, And once you drive retail sales, that is the opportunity to drive retail rents.”

The office sector has certainly benefited from the wealth influx, especially among companies entering the market for the first time, CP Group’s Reese said.

“For the last few years, the momentum on the leasing front has been unlike anything the state has experienced before,” Reese said. “Historically, maybe there was 250,000 square feet or so of new-to-market tenants coming in. Since Covid, it has been 2 million square feet and, if you were to look at who that is, it is every household hedge fund, private equity, bank, technology firm. They all established a presence in South Florida.”

Those new companies want Class A office space, and they are willing to shell out top dollar for it.

“There is no cap on what the top hedge funds or banks are willing to pay. The comps we are getting in West Palm for the best-quality space are three or four times higher than the highest rent ever achieved in South Florida,” Reese said. “What people are paying in rent per square foot is what we are buying buildings for per square foot.”

The influx of people and business has enhanced the demand for industrial, too, Elion Partners’ Stellino said.

“Those people are still shopping. They are still buying things,” Stellino said. “And where does all that product get stored before it goes to the retailer? Before it goes to the condominium? It all flows through the warehouse.”

Increasingly Unaffordable

The luxury market is performing well because South Florida is a historically proven safe harbor, both domestically and internationally, BTI Partners’ Breakstone said.

“Look at what is happening in Brazil, Colombia, Peru, Russia,” Breakstone said. “People want to keep their money here.”

But while the influx in cash has helped the commercial real estate sector, it hasn’t made it easier for the average income earner to afford to live here. Not only are most homes out of reach thanks to high interest rates, but rents are increasingly unaffordable, Breakstone said

“People who are medium income, they’re using over 50% of their earnings to live here and it’s getting even more costly,” Breakstone said.

Even local residents who bought early have a predicament.

“If you live in a place that you own, it’s great what you can sell it for,” Breakstone said. “But what are you going to buy?”

Higher interest rates and labor costs have made it much more expensive to build, too. And with less supply, there will be higher housing costs, taking the housing affordability issue from bad to worse, Breakstone said.

“I think Miami is on the track to be another New York, just with a better tax environment, superior weather, easier access and a lot of other dynamics,” Breakstone said. “But affordability is going to be a substantial challenge. I don’t think that is going to go away and there is going to have to be more creative solutions.”

The attraction of a skilled workforce is what South Florida needs to attract large tech companies such as Google, Reese said.

“South Florida in general is a place a lot of students want to move to, but it’s extraordinarily expensive,” Reese added, “So offering more affordable housing options is going to be critically important to attract that talent, and having that talent will spur more growth with employers.”

Future Trends

South Florida has likely already seen its biggest lease deals in the present real estate cycle, Reese said, so a “cooling off period” seems imminent. Transactions for office buildings, on the other hand, will probably heat up as the substantial mortgages that landlords took out over the years come due.

“We are at this standstill where somebody has to blink and … the first guy to blink is going to be the seller,” Reese said.

Retail landlords will generally do well in South Florida, thanks to the influx of cash and a shortage of available retail space, Edens’ Shiman said.

Industrial is also set to prosper, especially since developers and retailers are still hoarding items and materials after dealing with supply chain issues last year.

“They realize they are losing customers if they don’t have items on the store shelves,” Elion Partners’ Stellino said. “So, they keep that inventory here, where they can control it. That means builders and distributors now keep the raw materials they need in warehouses here instead of offshore and abroad, in case there’s another hiccup in the supply chain.”

Yet, there’s only so much space where new industrial can be built, leading logistics developers to consider new approaches.

Stellino said local industrial developers could replace Class B and Class C office buildings with newer Class A industrial, since they’re often in major markets.

Breakstone said there’s so much uncertainty in the market, he’s stopped trying to predict the future. He just makes sure he’s nimble enough to react to the “crosswinds that are happening.”

“South Florida is a micro-economy that does not follow national trends,” said Berkowitz Pollack Brant’s Lieberman. “We have booms when no one else does, And we have busts when no one else does.”

And Florida is unique in another aspect: Many of the people moving their residences and companies to the Sunshine State are attracted by its center-right politics.

“People are moving here for political reasons,” Lieberman said. “As long as there is a political imbalance between the north and the south, I think you will see the continued increase in population.”

 

Source: SFBJ

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Retailers, third-party logistics firms and e-commerce groups alike are eating up the most big-box warehouse space in today’s red-hot market.

Retailers and wholesalers accounted for the most industrial deals at 200,000 square feet or larger last year, or 35.8% of all leasing activity, a considerable increase from 24.7% in 2020, according to CBRE Group Inc. E-commerce fell from the No. 1 spot in 2020 to third last year, accounting for 10.7% of all deals, while 3PLs grew from 25.8% to 32.2%, ranking No. 2 among large industrial leases in both 2020 and 2021.

Propelled by a surge in online ordering, and changes to consumer preferences in part because of the pandemic, retailers and 3PLs have ramped up their distribution networks considerably in recent years. That demand is expected to be sustained this year, and could become even more frenzied with the recent surge in gas prices.

The cost of regular gas has risen nationally 20.9% in the past month, from an about $3.50 a gallon to $4.32 on Tuesday, according to figures from Heathrow, Florida-based American Automobile Association Inc.

James Breeze, senior director and global head of industrial and logistics research at CBRE, said transportation accounts for at least 50% of a typical industrial occupier’s costs, even before the recent hike in inflation and oil prices. But, largely because of sanctions imposed on Russia from the war in Ukraine, oil prices have risen dramatically, although Brent crude futures — a key benchmark for oil prices — just began to decline. National gas prices were down 0.2% between Monday, March 14 and Tuesday, March 15, according to AAA.

“Any run-up in transportation costs will likely outpace warehouse rent growth, even while that’s growing at a rapid clip, which could result in even more demand for warehouse space,” Breeze said.

Carolyn Salzer, senior research manager of industrial logistics at Cushman & Wakefield PLC said higher gas prices could have a ripple effect on the industrial market, depending on the user and their supply-chain model. Both Salzer and Breeze said real estate costs for warehouse users have typically been about 5% of a company’s costs but, more recently, that’s gotten closer to 10%, Salzer said.

“If you bite the bullet and pay the more expensive rent to be close to the population center, and be more competitive with the labor pool and provide easier options for commuters to get to where you’re located, it can cut your transportation costs on gas and mileage in general,” Salzer continued.

Cushman & Wakefield is forecasting rent growth for warehouse and logistics space will rise by more than 15% in the next two years. Class A and new construction rents are anticipated to grow at an even higher rate. Those rental surges are creating a squeeze for some users, with tenants looking at lease terms sooner than what’s typical, or negotiating an early renewal or a smaller extension to resize a facility or consider real estate farther out, Salzer said.

But, Breeze said, for most industrial users today, higher rental rates generally aren’t causing companies to hit the brakes on expansion because they need the space to store inventory and lower transportation costs.

Salzer said she anticipates e-commerce users will occupy about the same share of the market it has since the pandemic, or 40%. That’s compared to 28.2% of all industrial absorption from 2016 through 2019, according to Cushman. Many retailers are opting to work with 3PLs to bolster their supply chains, which will continue to comprise demand in 2022 and beyond.

“CBRE so far this year has seen ramped-up leasing activity for groups that deal in building and construction materials, as well as medical supplies, which typically represent a lower share of the overall warehouse market, Breeze said. “That’ll likely mean a more diversified occupier base this year.”

 

Source: SFBJ

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South Florida’s industrial market fundamentals, particularly for bulk warehouse space, blew through the third quarter of 2021 on strong leasing demand and new construction

The region’s healthy consumer market and growing population helped push investor and occupier confidence in the industrial market, which is likely to continue through 2022.

The backlog at West Coast ports is causing weeks of delays for goods that need  to travel to East Coast markets, making warehouse/distribution space in South Florida an attractive and faster alternative from a distribution standpoint. Bottlenecks in the supply chain are realigning how many firms view real estate needs locally with a shift in philosophy for inventory management.

Previously, companies focused on lean supply chains where materials and goods arrive “just in time.” In a market like South Florida, that meant limited amounts of warehouse space were needed.  Now, companies are turning to an inventory strategy that follows a “just in case” model, where more goods are stored closer to customers to minimize fluctuations in demand. South Florida, with three deep-water ports, has the capacity to address the immediate logistics needs for companies with changing inventory strategies.

In the last year, 18,200 new industrial and warehouse-related jobs were created in Miami-Dade, Broward and Palm Beach counties. They were added because of big-box expansion by e-commerce firms, together with a push into last-mile facilities. Hiring also occurred with traditional retailers, plus new-to-market entrants, which increasingly viewed the tri-county as a strategic location to serve the immediate needs of customers.

New inventory and aggressive development captured some of the new employment. In the first nine months of 2021, 5.4 million square feet of new industrial space was delivered in the region. As the industrial inventory and deliveries grew, so did the occupiers’ space requirements for square footage, but new construction could not keep up.

As of the end of the third quarter, 6.6 million square feet of industrial space was under construction, with three projects representing 1.8 million square feet of new inventory. Still, overall industrial vacancy in South Florida fell to 4.4 percent in the third quarter. Both Miami-Dade and Palm Beach County were even tighter at 3.3 percent, with Broward County coming in at 5.9 percent as available space throughout the region decreased year-over-year.

While not a record-setting year yet, new leasing activity year-to-date of 11.6 million square feet was only 18 percent less than the full amount for all deals done in 2019. Net absorption, or the amount of space absorbed by tenants, was 7.8 million square feet in 2021. That represents a 250 percent increase in the amount of space absorbed when compared to 2020.

yc37i south florida industrial absorption The South Florida Answer to West Coast Logistic Bottlenecks

In Miami-Dade, leasing reached more than 6.8 million square feet year-to-date, an increase of 15.5 percent compared to the same period one year ago. For that same period, Broward County recorded more than 3.6 million square feet, a 36.1 percent rise from 2020. Palm Beach County had 1.0 million square feet in new leasing activity so far in 2021.

Limited availability on heightened demand allowed landlords to push asking rates to all-time highs. Overall average asking rents for all South Florida were at $9.87 per square feet, triple net, the highest amount recorded. Rents in Miami-Dade were at $9.17 per square foot, a 7.1 percent jump from last year. And Broward County also reached an all-time high of $10.27 per square foot in the third quarter. Palm Beach County topped out at $11.07 per square foot with the asking rate rising steadily over the last three quarters as construction picked up.

AfGHE south florida industrial rents e1637699131823 The South Florida Answer to West Coast Logistic Bottlenecks

Confidence in South Florida’s economy and potential for growth will only be enhanced by the lifting of U.S. restrictions on foreign travel. The influx of travelers and investors from overseas, starting over the holidays, will contribute to additional optimism in industrial market fundamentals in the region. The longer that challenges remain at West Coast ports to efficiently move goods into the United States means that South Florida becomes the better, more reliable strategic alternative for companies. The region’s positive fundamentals post pandemic,including solid population growth and rising incomes, make South Florida an attractive market for investment.

 

Source: Commercial Observer

 

Developers completed construction of 289 million square feet of industrial and logistics real estate in the U.S. last year, but any concerns of oversupply are tempered, as only 39 percent of space in new construction was available.

That’s a major factor in vacancies staying near all-time lows in 2019, according to a new report from CBRE. The CBRE analysis finds that at 22.2 percent, Central and Northern New Jersey ranked among the top five markets nationally with the lowest vacancy rate for 2019 completions.

Deliveries outpaced the 255 million square feet of new absorption, but with robust leasing from occupiers, especially ecommerce and retail firms that often require modern building design and amenities, supply and demand dynamics remain healthy. A vacancy rate of less than 50 percent is considered healthy for newly delivered industrial properties.

“As New Jersey’s industrial market continues to break leasing and rental rate records, new developments are being snapped up by space users at a rapid pace,” said Thomas Monahan, Vice Chairman. CBRE. “While the development pipeline remained robust with 28 buildings and 10.3 million suqare feet currently under construction, the demand for high quality product is far outpacing supply.”

Another major factor contributing to the strong absorption of new construction is the increase in built-to-suit development — the construction of space for a specific space user. This segment made up 28.1 percent of new construction activity, as companies increasingly need unique requirements to meet their specific demands.

In markets with over four million square feet of new development, Kansas City finished 2019 with the lowest overall vacancy rate for 2019 construction completions at 7.3 percent, followed by Miami, Baltimore, and Greenville, SC, which all had vacancy rates for newly constructed product under 20 percent. Dallas-Fort Worth was the strongest core market, with nearly 75 percent of the 25 million square feet completed in 2019 taken.

Supply fundamentals should remain stable this year, as already 33 percent of the 309 million square feet under construction nationwide is already accounted for. A preleasing rate of 25 percent for under-construction product typically are indicative of a solid leasing environment.

 

Source: Real Estate Weekly