By Darcie Lunsford
South Florida’s industrial market boiled over with demand in the first quarter while office fundamentals improved, driven more by lack of construction than corporate growth, according to the latest CBRE market data.
With more than 4 million square feet underway, South Florida’s warehouse and distribution is still king of commercial real estate.
Miami-Dade County is at the forefront with 2.6 million square feet coming up. The county had 952,000 square feet of industrial deliveries in the first quarter.
Despite the ground swell, vacancy dipped 20 basis points, to 3.2 percent, compared to the same quarter last year. Leasing velocity, as measured by absorption—net total of spaces occupied and vacated—surged with 951,711 square feet of positive absorption.
The flood of new inventory did keep rents relatively flat, says veteran CBRE industrial broker Michael Silver. “Developers may have underwritten more for starting rents, but they have not been able to get it,” he says. Silver says tenant demand is brisk, with perishable imports from South America a major driver.
In Broward County, absorption tumbled in the first quarter by nearly 80 percent, with a scant 25,762 square feet of positive absorption.
By the end of the first quarter, 938,505 square feet of new industrial projects were coming up. Many were leased before delivery, says Chris Metzger of Cushman & Wakefield.
He says demand is more diverse than it was a decade ago, with aerospace, pharmaceutical, manufacturing and retail distributors scampering to lock in spaces. “This is why rates have gone up $1 in the past 18 months,” Metzger says. “It is definitely a landlord market.”
Palm Beach County is the priciest market in the region for industrial tenants, with base rent increasing 1.6 percent year-over-year for an average of $9 a square foot. Vacancy nears that of Miami-Dade, tumbling 40 basis points to end the quarter at a tight 3.6 percent.
It had no new product delivered in the first quarter, but 520,099 square feet are underway, data shows. Its office market is the region’s softest, at 16.4 percent vacant. In the first quarter, the county had 391,224 square feet of sublet offerings hit the market, most in Boca Raton.
Jeff Kelly, a Boca Raton-based broker for CBRE, says the news is “concerning,” but most of the sublets are limited to larger blocks of space. “It is the first little shakeup in the market we have seen in many quarters,” Kelly says. “I still think you are going to see positive absorption. There is nothing being built and added to the supply.”
The county only now is seeing its first major speculative office building since the recession, with construction of the 63,500-square-foot Gardens Innovation Center in Palm Beach Gardens.
Despite 10 quarters of positive absorption, Broward County office development also remains restrained, with two buildings totaling 107,710 square feet under construction in the first quarter.
Both downtown Fort Lauderdale and Miami have major developments underway. Stiles Corp. recently unveiled plans to build Two Zero One Las Olas, a 14-story, 401,800-square-foot trophy tower on land owned by Broward College. Miami this year will open the 280,000-square-foot MiamiCentral project, and Hines just announced plans for the 600,000-square-foot 110 10th Street tower at Miami Worldcenter, although delivery isn’t until 2021.
“I would describe the downtown Miami market as stable with steady growth,’’ says Don Cartwright, who oversees leasing at the city’s biggest office tower, the 1.2 million-square-foot Southeast Financial Center. “There is activity, but most of it is lateral.”
He says the downtown market could become glutted with too much new supply beyond its 200,000-square-foot a year average historical absorption. “I would question building a 600,000-square-foot tower today with substantial leasing,” he says. ↵
Freelance writer Darcie Lunsford is a former real estate editor of the South Florida Business Journal. She is the senior VP for leasing at Butters Group and is avoiding a conflict of interest in her column by not covering her own deals.