01/08/09

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Commercial report

Go to chart: Industrial market statistics by county

Despite a slew of corporate bankruptcies, fallout from the housing slowdown and a battered credit market, local real estate experts are confident of the stable demand for warehouse, manufacturing and distribution space in South Florida throughout 2008.

Continuing to fuel the demand for industrial space in Miami-Dade, Broward and Palm Beach counties are businesses tied to international trade, as well as large institutional owners seeking investment opportunities.

"Miami has always had a strong industrial market and I think it will continue to be that way over the next few years," says South Florida developer Ford Gibson. "I won't argue that the market is softer than it was two or three years ago."

Gibson, a principal of Coral Gables-based Gibson Development Partners, explains, "More than 80 percent of all the goods from Latin America come through this region. As long as the distributors need quick access to the ports and airlines to move product around the country, Miami will remain a strong market for industrial space."

In Broward and Palm Beach counties, despite an economic downturn, the industrial market continues to draw tenants seeking warehouse space for local distribution points throughout South Florida.

"The Broward industrial market is driven by smaller firms that don't need a connection to the airport," says Gibson. "And if you can even find it, the price of raw land in Miami and Broward is making Palm Beach County a desirable place to go."

But developers can only gobble up so much land in Palm Beach County. Federally protected Everglades and the Atlantic Ocean create natural barriers that limit growth opportunities.

As long as rents hold steady, a land shortage and stricter lending guidelines could spell opportunity for developers who bought property before prices shot up. "If a developer has land to build on right now and access to capital or partners with cash, this is a good time to build," Gibson affirms.

Gibson's firm will break ground over the next few months on a 160,000-square-foot office/retail complex and an 85,000-square-foot warehouse in Doral.

"Right now, companies will stuff people in a closet before they expand," he asserts. "But when the market turns around, the developers that toughed it out will be able to deliver when no one else can."


Miami-Dade County

The industrial vacancy rate hovered around 6.2 percent during the fourth quarter of 2007, a tick better than the 6.3 percent in the third quarter of 2007, but above the 5 percent reported in the fourth quarter of 2006.

A major contributor to negative absorption was the 978,164-square-foot Centergate at Gratigny in Hialeah, one of the largest buildings in South Florida. It hit the market last year when Higgins Development Partners terminated the lease with Crossroads Transportation and Logistics.

Higgins Development Partners is negotiating with several potential logistics-type tenants to lease the space, according to Senior Vice President Gene Preston.

Chicago-based Higgins also plans to break ground on another 620,000-square-foot warehouse and distribution complex on the adjacent 27-acre parcel, although it could delay construction due to the uncertain economy and jittery housing market.

"We are currently studying the local market to determine when we will start construction," says Preston. "We believe the South Florida market is very sound but it's not as dynamic as it has been for the past several years."

Industrial space in Miami-Dade fetched $7.17 per square foot in the fourth quarter of 2007, down from $7.62 in the fourth quarter of 2006, and a high of $8.10 in the first quarter of 2007.

The strongest area of industrial space is in the manufacturing segment, which boasts a healthy 5.2 percent vacancy rate. One of the most desirable locations for warehouse/distribution space is the Airport West submarket, which reported the highest asking rents in the market, at $8.51 per square foot.

"The amount of high-quality space is at a minimum, rents are at an all-time high and I believe they will stabilize there," says Wayne Ramoski, senior director of industrial brokerage services at Cushman Wakefield in Miami. "We anticipate moderate activity in all segments of the market."

Rental rates should remain at current levels throughout 2008 and early 2009, according to local real estate leaders. The overall vacancy will fluctuate between 6 and 7.5 percent, while demand for large, top-quality warehouse/distribution space will rank high throughout Miami-Dade.


Broward County

The overall vacancy rate among Broward County's 93 million-square-foot industrial market rose to 5.4 percent by the fourth quarter of 2007, up from the 3.6 percent one year earlier.

In the fourth quarter alone, overall leasing activity totaled approximately 540,000 square feet. The southwest submarket led the way with 275,000 square feet of lease transactions.

Leasing activity fell from 4.6 million square feet in 2006, to 3.1 million square feet in 2007 — primarily caused by companies reducing occupancy needs in a slowing national economy, and the completion of 19 new construction projects that totaled nearly 1.2 million square feet, according to global real estate consultant and brokerage Cushman Wakefield.

Mattress Giant vacated 90,750 square feet in Fort Lauderdale and the USDA gave up 52,690 square feet in the Plantation Technology Center.

Despite the decrease in overall tenant demand, asking rental rates increased slightly over the past year, according to Cushman Wakefield. Industrial space fetched $9.31 per square foot in the fourth quarter of 2007, compared to $8.41 in fourth quarter 2006.

Royal Caribbean Cruise Lines signed the largest transaction during fourth quarter 2007, for 267,000 square feet in the Weston Business Center. Eight of the top 10 leases completed this year were all located in South Broward locations.

Other than a handful of notable deals, smaller transactions that measure 10,000 square feet or less dominated the market. Brian Smith, executive director of industrial services for Cushman Wakefield, says smaller deals were moving quickly in 2007 and will likely continue the trend throughout 2008.

"Small- to medium-sized companies that move goods to and from are fueling the 25,000- to 40,000-square-foot deals," says Smith. "Where we see 75,000 to 200,000 square feet, space is moving a little slower."

Construction is healthy in Broward County too, according to local real estate leaders. Coaster Company of America's 250,441-square-foot, built-to-suit facility in the Miramar Park of Commerce was the largest construction project in 2007, followed by the 123,062-square-foot speculative warehouse/distribution building developed by Industrial Developments International, located in the Pompano Business Center. Whole Foods leased 70,000 square feet within the new development.


Palm Beach County

Activity in the industrial market has slowed from its frantic pace in 2005 through early 2007. The vacancy rate dipped to 3.9 percent in the fourth quarter of 2007, down from 4.2 percent in the previous quarter.

The average lease rate was $9.76 per square foot in the fourth quarter of 2007, compared to $9.95 one year earlier. Boca Raton has the highest lease rate, hovering around $10.90 per square foot, and Riviera Beach has the lowest, at around $8 per square foot.

Asking rental rates will stabilize in 2008 as more space comes online, according to Scott Sime, managing director of CB Richard Ellis in Miami. Additionally, the demand for warehouse, distribution and manufacturing space will continue to rise due to the state's population growth, business activity and international trade, says Sime.

"There are more than 1,200 multinational companies that have corporate or regional headquarters in this region that produce $200 billion in revenue," says Sime. "That is a significant driver to the industrial market."

With renewed emphasis on speculative projects in the West Palm Beach and Jupiter submarkets, there are 1.2 million square feet of industrial inventory under construction on land that was purchased before prices shot up across the region.

"In my opinion, Palm Beach County has a well-established and solid industrial market with few development opportunities," said Rick Etner, executive director of Cushman Wakefield in Broward and Palm Beach counties.

"The housing market and credit issues tempered some of the exuberance we had," says Etner. "It slowed down some of the run-up in pricing we've seen in recent years and pulled in the reins. I think we will see intelligent growth."