Posted on April 17, 2018 · Posted in Industrial / Flex, Investments, Land, Office

As part of the annual Industrial Owners Forum, Colliers International South Florida brought together more than 50 institutional owners from across the United States for a closed discussion on the state of the industrial market in South Florida, where all of them own properties.

Each owner shared their thoughts on trends, local and global influences, and where the South Florida’s industrial market is heading. There was general consensus that South Florida’s industrial market has evolved its position as one of the top industrial markets in the United States, and they expect to see the trend of acquisitions continue into 2018.

Nearly 50 percent of the institutional owners at the forum indicated they were looking to solely purchase versus selling industrial properties this year. This is happening across all the submarkets in the region.

As expressed by the group, there is plenty of capital to invest in South Florida, but the limited supply creates longer acquisition timelines. However, product availability and land constraints are making it difficult to find good deals. With these industry fundamentals, we can expect industrial product to continue trading at a premium and lease rates to continue climbing this year.

Region View

In the Miami submarket, one troublesome trend institutional owners expressed is a prolonged permitting process, which has made developing in Miami-Dade County, especially the Doral/Airport West submarket, challenging.

In Broward County, particularly southwest Broward, health care continues to be a major driver in the submarket and is expecting growth in 2018.

Many institutional owners were bullish on Palm Beach County’s industrial market, which has gradually expanded. Developers expect the market to continue mounting as the population continues to grow in a land-constrained market.

A surprising trend for industrial owners in 2017 was the increasing demand for cooler and freezer storage space. Cold storage users have become more sophisticated and need higher-quality buildouts for energy efficiency, resulting in a willingness to pay double-digit increases in rents to procure the “right” space.

Cold-storage users have a need to be close to ports and airports, so the current supply for cooler and freezer space is limited. Existing buildings with coolers and freezers are being purchased for their land, supporting the fact that cold storage users are looking for new high-quality supply in 2018.

More Momentum

There are a number of indicators showing that momentum in South Florida’s industrial market is poised to continue at least for another year.

The industrial market in South Florida remains the strongest property sector due to changing consumer dynamics and technology, which is feeding robust fundamentals including surging occupancy, rapidly increasing rents and record high net absorption in 2017.

An indicator is the fact that institutional owners continue to actively buy and develop industrial assets. Another important sign is that tenants are committing to more space today than they may need in anticipation that industrial space will be harder to obtain in the future.

We’re seeing capital flows from across the globe entering South Florida to own a piece of the region’s industrial real estate. Industrial owners also expect to see an accelerated migration from Northeastern states with high income taxes to Florida because of the new tax reform law.

Due to all these factors coupled with owners evolving to meet the expanding demands of tenants, the industrial market is expected to maintain momentum throughout 2018.

Despite strong fundamentals, there are several challenges that institutional owners are facing. One is rising construction costs, which started increasing in 2017 and are expected to continue rising through this year due to new building regulations and labor shortages.

For example, shell pricing for a typical 250,000-square-foot industrial building in 2015 was $43 per square foot. In 2017, it increased to $47 per square foot. Electrical pricing is also on the rise because of new building regulations in Florida. Owners expect construction costs to increase by 5 percent through the end of 2018.

Another challenge facing owners is the scarcity of land in South Florida for development. Many owners are now considering purchasing sites and buildings in older submarkets with plans to redevelop into new industrial and flex space.

As industrial becomes the preferred asset class in South Florida, non-industrial players are attempting to enter the market, which will be a dynamic to watch into 2018.


Source: DBR

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