South Florida Growth Drives Industrial Demand Beyond Pre-Pandemic Levels
By Chris Owen February 10, 2022 1:07 pm
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South Florida is leading the country’s economic recovery, which is entering into the next expansionary period. The stars aligned in 2021 for the region’s industrial market thanks to several economic drivers fueling growth. Fundamentals rose across the board, with rising consumer spending and a rebound in tourism pushing demand for industrial space to record levels. In a sector with an already high barrier to entry, that demand helped pricing skyrocket and vacancy plummet even amid record new construction.
The population in South Florida increased by 40,000 new residents, with many affluent refugees from markets to the north migrating to the region. Housing, particularly multifamily demand, soared in 2021, with demand in the next two years expected to be about five times its normal pace. Employment surged with over 132,000 new jobs reported year over year in December 2021, representing a 5 percent bump and the unemployment rate fell to 3 percent in the region. Industrial employment rose to 35,200 and made up over a quarter of new jobs created, according to the Florida Department of Economic Opportunity.
Together, these economic factors contributed to the industrial market’s historic year. Inventory was approaching 300 million square feet in South Florida in 2021 and there was only 10 million square feet vacant by the end of the year. Overall vacancy was 3.4 percent, down 60 basis points from year-end 2020 and driven by demand for warehouse and distribution space. The tightest market in terms of vacancy was Miami-Dade at 2.7 percent even as it had the highest amount of new construction deliveries as well as square feet under construction. Broward County’s overall vacancy rate rose slightly to 4.7 percent on new construction deliveries throughout the year. In Palm Beach County there was more limited speculative development, which normally would enhance space options for tenants, but instead made vacancy drop to 3.6 percent in the fourth quarter.
Square footage added to the region also reached astronomical levels. Over 6.1 million square feet was added throughout the region in 2021 with another 6 million square feet currently under construction. In Miami-Dade, there was over 4.5 million square feet under construction at the end of the year with approximately 22 percent pre-leased. About 3.4 million square feet, or 74 percent, of the product under construction was speculative. In Palm Beach County, 1.2 million square feet of new warehouse and distribution product was added last year with 1 million square feet delivered in the third quarter alone. E-commerce played an outsized role in driving new construction in the region. Several of the largest projects were build-to-suits for tenants looking to expand to meet heightened demand from consumers.
And it’s no surprise that the industrial market experienced record-setting leasing activity, which hit over 17.7 million square feet in 2021, surging past pre-pandemic levels. Over half of all new leases signed were in Miami-Dade, followed by 38 percent in Broward County and less than 9 percent in Palm Beach County. Tenants occupied over 11.3 million square feet of space last year, the most amount on record and 366 percent more than what was absorbed in 2020.
Asking rates followed a similar trend and experienced historic highs on limited availability, due in part to heightened demand outpacing new construction. Overall average asking rents for all of South Florida were at $10.40 per square foot, triple net. Warehouse and distribution rents were at $9.78 per square foot and are expected to eclipse $10 per square foot in the first quarter of 2022. Rents in Miami-Dade were at $9.54 per square foot, a 7.7 percent jump and the fifth quarter in a row where an all-time high was set. Broward County reached an all-time high of $11.18 per square foot in the fourth quarter, an outstanding 15.5 percent year-over-year increase. Palm Beach County topped out at $10.77 per square foot with asking rates fluctuating throughout the year due to demand outpacing existing and newly built supply.
Industrial demand will continue to be hot as consumer spending on goods remains elevated and international trade keeps pouring in through South Florida’s ports. The only real limitation to this demand will be constraints on the development side, which is struggling to keep up due to lack of land availability, natural barriers to entry and logistic bottlenecks impacting construction supplies as well as timelines. Vacancy will likely remain tight and be at or below current levels as a result, and rental rates are expected to surge by another 6 to 10 percent per year in 2022 as well as 2023.
Chris Owen is director of Florida research at Cushman & Wakefield (CWK).
