South Florida’s Big, Empty Warehouses Drag Down Industrial Market

There are 48 industrial spaces larger than 100K SF available across South Florida, according to data provided by Cushman & Wakefield.

The vacant spaces total more than 10M SF, and their failure to lease is starting to weigh on the market.

The pandemic-era surge that defined South Florida’s industrial market has come crashing down, with the region experiencing a bit of a hangover as the large blocks that once drove record leasing volume sit on the market amid tenant demand for smaller footprints.

Combined vacancy across Miami-Dade, Broward and Palm Beach counties has doubled in the last year to 3.9%, according to Cushman & Wakefield. The pace of leasing is down 23% from 2019, before the pandemic upended market dynamics. And the 2.4M SF of leasing activity from January through March marked the worst first-quarter performance of the last five years. 

“The larger blocks have been sitting for a longer amount of time than what we would think would be typical,” said Erin Byers, an industrial broker in Colliers’ Miami office.

Rents have nearly doubled since 2019, causing “sticker shock for tenants that are in the market,” she said. 

More than 29M SF of new industrial space has been delivered in the last five years, and another 6M SF is under construction, according to Cushman & Wakefield. Just 10% of the under-construction space is preleased.

The South Florida market has two and three years of industrial supply for spaces larger than 150K SF and 300K SF, respectively, CoStar estimates.

Large distribution center leases helped propel activity in South Florida during the pandemic, as shippers followed the lockdown-driven migration trends. Those tenants aren’t closing many deals today, meaning landlords with large projects will need to broaden their time horizon if they want to fill their space at a premium rate, Byers said. 

“The landlords need to be patient. For tenants that can withstand that type of rent, you need a strong company,” Byers said. “Not to say that they leased to a lot of bad-credit companies [during the pandemic], there just wasn't as much of a process. People were fighting over spaces and things were happening, in my opinion, maybe a little too quickly.” 

Hesitancy from corporate executives has kept large deals from closing, said Christopher Thomson, a vice chair and industrial broker for Cushman & Wakefield based in Boca Raton. 

Regional and local managers at large firms are pushing their companies to expand in the market, but national-level decision-makers have been delaying new deals, hoping for interest rates to improve or the economic picture to become clearer, insiders said.

Companies that have maintained a holding pattern for the last year are starting to face logistical issues from the delays and are beginning to accept that they have to work within the higher-for-longer interest rate policy signaled by the Federal Reserve, Thomson said. 

“The beginning of June is going to be probably our lowest point of activity on those larger users, but we're starting to see those groups dusting their tour books off,” he said. “That doesn't mean I'm expecting commitments during the summer, but I do expect during the beginning of the fourth quarter to start seeing some large announcements happening.”

Byers agreed that there is some demand waiting in the wings, but she is less optimistic it will have a meaningful impact on market dynamics. 

“There's a select handful of groups,” she said. “I don't think there's this long list of people that are just going to say, ‘OK, the election is over, let's just move on and take down space.’” 

Prologis delivered a 186K SF warehouse at Prologis Seneca Park in Pembroke Park last year with just 36K SF leased, according to an online listing. Bridge Industrial secured $28M in August 2022 to build the 171K SF Bridge Point Port Everglades. The project is wrapping up construction with none of its space preleased, according to a listing. 

The institutional background of most of South Florida's large-block developers means they can afford to have a property not generating revenue while they find the right tenant, Byers said. Rather than dropping rents to entice tenants, landlords are increasing their concessions like free rent and tenant improvement allowances, she said.

The dynamics in large blocks are a stark contrast to the market for smaller spaces. 

Anything under 25K SF is getting leased quickly, Byers said. Demand weakens as spaces get bigger, with strong activity up to 50K SF but next to no new leasing above 100K SF. 

That continued activity has helped prop up asking rates, which are coming off of a bull run that saw prices jump from $8.74 per SF at the start of 2019 to $16.27 per SF at the end of the first quarter. That growth has waned, but rents still climbed more than 4% in the most recent quarter. 

“We've hit the top of the market. We're kind of plateauing,” Thomson said.

The developers trying to make industrial deals pencil are assuming 4% to 6% rent increases, which Thomson said is a reasonable expectation.

While rent growth has moderated, many tenants already in the market are coming up on a 10-year lease renewal and finding out their rents have doubled. Local tenants that opt to move are looking for less square footage in a more efficient space, like trading into a lease with a higher rent per SF in a building that has a higher clear height. 

More often, though, the local tenants who are exploring the market opt to renew, Byers said.

“You're in this world where tenants are going onto the market to see if their landlords are truly being honest about what market rent is,” she said. “I can't tell you how many people are like, ‘Send me your information,’ or, ‘We'll come look at a building,’ and then you never hear from them again because they're just exercising their renewal.”