South Florida Industrial Activity Plummets Despite Continued Demand
South Florida’s industrial market has retreated from the smashed record of earlier in the pandemic, but the sector continues to see significant leasing activity and a tight inventory that are still pushing rents higher.
There has been 4.1M SF of leasing activity across Miami-Dade, Broward and Palm Beach counties through the first half of 2023, according to second-quarter market reports from Cushman & Wakefield. While relatively robust compared to historical averages, all three regions saw activity decline compared to last year.
The 2.5M SF of year-to-date leasing in Miami was 57.2% lower than in the first half of 2022. In Broward County, year-to-date leasing activity at the end of the second quarter was at 55.6% of the volume seen this time last year.
“Is it slowing from the robust activity that we saw during 2020, 2021 and 2022? Yes, but that is a technicality,” said Eric Messer, senior research manager for Florida at Cushman & Wakefield. “Demand is normalizing to a pre-pandemic, pre-e-commerce global distribution level. But there is healthy demand being seen out there, and you're still seeing leasing activity of new industrial products.”
While weakening demand is partially to blame for the slowdown, low vacancy rates and limited supply in South Florida could also be hampering activity. All three South Florida counties have sub-5% vacancy rates, with only 1.6% of Miami's industrial space unoccupied in the second quarter.
The tight supply has continued to put upward pressure on asking rates. Palm Beach County has the highest asking rates in South Florida and saw rents rise 6.4% quarter-over-quarter to $15.23 per SF, the first time ever passing the $15 mark, according to C&W. In Miami, rates rose 19.7% year-over-year to $14.18 per SF, with a wave of new construction priced at between $16 and $19.
“Landlords still have the upper hand with the tight market conditions and South Florida becoming a major global logistics and distribution hub,” Messer said, adding that rates would likely continue their upward trajectory at least through the end of the year.
Developers have responded by breaking ground on roughly 7.8M SF of industrial space across South Florida. New development is concentrated in Miami, which has 5.7M SF under construction.
Around 30% of Miami’s development pipeline is pre-leased, according to the C&W report, and more than 80% of the 1M SF that delivered in the first half of the year had secured tenants before the properties were built.
Broward County had comparatively weaker pre-leasing at the end of the second quarter, with tenants signing on for 15% of the area’s 1.3M SF development pipeline, according to C&W.
A recent deal would boost that number above 30%. Last week, airplane engine maintenance company CTS Engines signed a 216K SF lease for a full building at the under-construction Osprey Logistics Park, a two-building development being built by Foundry Commercial in Coral Springs that is expected to deliver in the fourth quarter.
Lease renewals dominated the largest transactions in the second quarter across South Florida. Mattress seller Serta Simmons Bedding Co. inked the largest deal, a 236K SF renewal at 3774 Interstate Park Road in Riviera Beach in Palm Beach County. The largest new lease was signed by Specialized Freight Carriers, which took 134K SF at Weston Commerce Park in Miami.
While demand has slowed in the first two quarters of 2023, Messer said landlords and developers were likely to maintain their pricing power on rents for the foreseeable future. Strong pre-leasing signals continued demand, he said, and it isn't until vacancy rates approach 8% to 10% that tenants in South Florida have historically gained ground at the negotiating table.
“Even with the new product underway, if all of it was delivered available, it still does not push the vacancy rate up to a level where it's softening market conditions,” Messer said.
