Rent Growth Slows As Industrial Footprints Shrink In South Florida

South Florida’s industrial market is reaching something of an equilibrium after years of frenzied growth. 

Vacancy in Miami-Dade County ticked up to 2.4% but remains well below long-term averages even as more than 3M SF of new space has delivered this year, according to Avison Young data. Recent years' rapid increases in asking rates have also slowed significantly, up only 1.6% from the previous quarter to $16.73 per SF, while year-over-year growth sits at 16.4%. 

Third-quarter leasing activity was down 12% from the second quarter at 2.1M SF, and negative absorption totaled 319K SF, marking the first time since the third quarter of 2021 that more space became available during the period than was taken up.

The slip in absorption was due in part to delays in new development, according to the Avison Young report, but the average size of new deals has also shifted away from the massive distribution centers that were in demand two years ago.

The number of deals for between 100K SF and 250K SF has slipped by 71.5% since 2022, and leases between 20K SF and 50K SF accounted for 36% of leasing activity in the third quarter. 

“There's never been anything like the spike in 2021. Whether that was from e-commerce, whether it was post-Covid, whether it was pent-up revenge spending, population — all of those added to that surge,” said Wayne Schuchts, managing principal at SRS Real Estate. “The right way to look at the market is to go back to pre-Covid and look at that as a normalized market.”

Tenants in the market are no longer competing for space, in part because Miami-Dade County has 6.7M SF under construction, just 24% of which is pre-leased, according to Avison Young. 

“Industrial got like high-end homes when New Yorkers came in, where you had a line and you had to pay cash and you had to close tomorrow,” Schuchts said. “We don't have that anymore. You do have options when you're out with a tenant.” 

The largest deal of the third quarter was a 131K SF lease signed by snack-maker Frito-Lay at Bridge Point Doral, expected to deliver next year at 3400 Northwest 107th Ave. 

FedEx signed a 117K SF lease at the South Florida Logistics Center, just north of Miami International Airport, in the second-largest deal. Two developments adjacent to Florida’s Turnpike in Doral rounded out the top deals of the quarter, with Top Shipping Co. signing for 112K SF at 12480 Northwest 25th St. and Aeropost signing a 106K SF deal at the International Commerce Center. 

Despite absorption turning negative and the majority of under-construction space still uncommitted, Melissa Rose, a managing director at JLL focused on securing debt and joint venture equity financing for industrial assets, said the market has no fear of a bubble.

“There's no concern about the market being oversupplied,” she said. “We are not concerned about supply based on the amount of demand, and investors aren't expressing that concern.”

Four of the top 10 markets for year-over-year rent growth in the country are in Florida, according to CoStar, with Orlando topping the list and Miami in ninth place. The county ranks fourth for projected rent growth over the next four years.

“The folks that are building through this are going to build into a more supply-constrained market,” Rose said. “Even with all of that 9 million feet coming to market, I don't think vacancy will move much”

Rent growth in Miami-Dade County is being outpaced by its northern neighbor, Broward County, which ranks fifth and leads the nation in projected rent increases. 

Rents in Broward County at the end of the third quarter were at $15.76 per SF, up 19.7% year-over-year, according to Avison Young. The 1.9M SF of leasing activity from July to September was a 65.6% increase from the second quarter and the third consecutive quarter of positive growth. 

Vacancy in Broward County, at 4.5%, is at its lowest level since 2018, and unlike Miami-Dade, the area had 225K SF of positive absorption in the third quarter. Of the 991K SF of industrial space under development in Broward, 21% is pre-leased, according to Avison Young.  

The largest lease of the quarter in Broward Count was a 216K SF deal signed by jet engine maintenance company CTS Engines at the under-construction Osprey Logistics Park at 12000 Northwest 39th St., which is scheduled to deliver by the end of the year. 

The second-largest new deal was a 132K SF lease at First Gate Logistics Center for ATI, which manufactures parts for aircraft carriers and nuclear-powered submarines.

Trends in South Florida’s industrial market align with what is happening nationally as the sector climbs down from pandemic-era peaks. Tenants in the U.S. leased 64M SF in the third quarter, down 78.6% from 2021 but up 9.6% from 2019, according to data from Savills. Rents have continued to grow despite the slowdown, reaching an all-time high of $9.22 per SF nationally in the third quarter. 

Other major industrial markets have also seen a more significant backslide than South Florida. 

Leasing activity in California’s Inland Empire, the country's largest industrial market, was down around 25% year-over-year in the third quarter, and a robust development pipeline pushed vacancy to 5.2%, a steep increase from the 1.5% seen a year earlier. 

Atlanta, like South Florida, saw an industrial development boom during the peak of the pandemic, but very little of that space has been leased before coming online. Developers completed 12.7M SF in the third quarter, 98% of which was vacant, pushing overall vacancy up 1.3 percentage points to 5.8%.

The relatively strong pre-leasing in South Florida and a vacancy rate that is still well below historical averages signal that the region is well positioned to return to a normalized market as the pandemic wanes, Schuchts said.  

“Maybe there's a little more supply than we're used to, and maybe there's a little less demand than we saw a couple years ago,” he said. “Maybe it's a two-year absorption as opposed to a one-year.”