In addition to supporting retail real estate such as Sawgrass Mills, the second-largest tourist destination in Florida after Disney World, and American Dream Miami, the largest proposed mall in the U.S., South Florida’s international tourism and consumer buying power are fueling an industrial boom and institutional investors are taking note.
The majority of industrial users are seeking space to house merchandise for brick and mortar retail and e-commerce, especially near transportation centers, to streamline the packaging and distribution process. With its two major international airports, recent expansion of its two large seaports and access to multiple highways and railroads, South Florida is a highly desirable market, with occupancy hovering around 96 percent.
In fact, the third quarter of 2018 marked more than eight years of growth for South Florida’s industrial market, as demand outpaced supply for the 34th consecutive quarter. Industrial rents continued to rise throughout the region, as landlords push rents closer to the $8.53 per square foot record set back in 2007.
Some are asking if the strong leasing of new buildings will continue, or if the market will see rising vacancies should economic conditions slow in the near future. Either way, market fundamentals and strong ties to Latin American and Caribbean Island distribution should lessen the impact on South Florida if a future slowdown is in store.
Developers Break Ground
The tight market has also prompted developers to build numerous speculative and build-to-suit projects. For instance, Panattoni Development Co. and the California State Teacher’s Retirement System are developing Eastview Commerce Center, a six-building, 800,000-square-foot project that is going up on a former golf course in an infill location very close to I-95. The project is seeing significant interest from companies looking to locate in brand-new, state-of-the-art buildings that are in close proximity to the airports and seaports in Miami and Fort Lauderdale. The market is also attracting big players like Amazon and its new 855,000-square-foot distribution center, as well as institutional investors. Demand for well-leased industrial properties remains extremely high among investors as 34 sales totaling almost 3.7 million square feet occurred during third-quarter 2018.
Investors remain bullish as sales of premier, well-leased industrial properties have reached record-breaking levels. This year, there have been 79 sales for 7.9 million square feet worth $977.6 million. This performance is similar to last year’s when 7.9 million square feet sold for $844.2 million. The average sales price on investments increased slightly to $125 per square foot from $111 per square foot one year ago. As one example, Duke Realty acquired three newly constructed—and fully leased—buildings (totaling 1 million square feet) from Flagler Development in Countyline Corporate Park for $180 per square foot (equating to a 4.2 percent capitalization rate).
With a healthy absorption rate, near record-high lease rates and a consistently low vacancy rate, we anticipate South Florida’s industrial market will sustain its above-average growth for at least the next couple of years. Thanks to local companies expanding and new-to-market tenants setting up operations in South Florida, these strong fundamentals bode well for industrial real estate in the coming years.
Steve Medwin is executive managing director at Newmark Knight Frank & co-lead of the Industrial Services division for South Florida in the firm’s Miami office.