From Recovery to Expansion: South Florida Industrial Charts New Territory
By Chris Owen May 12, 2022 6:41 pmreprints
Last quarter, South Florida, and the state as a whole, was leading the way in economic recovery and setting the stage for the nation’s next economic expansion with gains in almost all commercial property types, particularly for industrial assets. Strong population and net migration, coupled with a resurgent tourism sector, are driving industrial fundamentals to positive territory. The industrial market is set to have another historic year in 2022, with numbers from the first quarter already trending better than the stellar growth achieved in 2021.
Industrial-using employment was the second-highest improving sector after leisure and hospitality over the last 12 months, according to a March release from the Florida Department of Economic Opportunity. Industrial-using employment throughout the state increased by 145,400 new jobs in that period, with 75 percent of new jobs coming in the trade, transportation and utilities sector, per the data. Similar trends followed in the three counties in the region.
The strong economic and employment fundamentals experienced in South Florida were expected to translate into a solid industrial market performance through 2022, despite recent headwinds from the war in Ukraine and China’s lockdowns. There was approximately 295 million square feet in industrial inventory across the region as of April, with over 1.8 million square feet delivered in the first three months of the year. Overall vacancy decreased, with only 3 percent — or 8.9 million square feet of industrial space — available in South Florida, indicating an incredibly constricted market for its size.
In a county-by-county breakdown, Miami-Dade once again had the tightest overall industrial vacancy rate with 2.3 percent, 40 basis points lower than the 2.7 percent vacancy rate documented at the end of 2021. Palm Beach’s overall vacancy rate followed a similar trend, falling 60 basis points from last quarter to 3 percent. Broward also fell, hovering at around 4.4 percent vacancy compared to 4.7 percent in the last quarter of 2021.
High barriers to entry, including lack of available sites for new development and rising construction costs, have yet to slow booming demand, with 10.2 million square feet currently under construction. The limited available inventory limits some tenants’ ability to expand.
Construction in Miami-Dade was up significantly compared to the previous quarter, with more than 7.6 million square feet expected to be delivered over the next four quarters. Broward and Palm Beach counties each had 1.3 million square feet under construction.
Leasing activity got a jump start in the first quarter, already trending higher than this time in 2021 with over 5.2 million square feet leased in the first quarter. Over 65 percent of new leases signed were in Miami-Dade, followed by 25 percent in Broward County and just over 9 percent in Palm Beach County. Tenants took occupancy of over 2.2 million square feet in the first quarter.
Asking rental rates continued to climb to new heights. Overall averaging rents for South Florida were $11.11 per square foot triple net, up 6.8 percent from $10.40 per square foot from the end of last year. For the first time, warehouse/distribution rents surpassed $10 per square foot overall for the region, coming in at $10.56 per square foot. As new space delivers with available space at higher rents, rent amounts were anticipated to rise through the rest of the year. Rents in Miami-Dade were up to $10.30 per square foot, a 2.3 percent jump. Broward County set a record in rental rates of $11.76 per square foot, which is a 4.5 percent year-over-year increase. Palm Beach County closed out the quarter with asking rental rates at $11.43 per square foot, up 5.4 percent.
Industrial demand in 2022, particularly for warehouse/distribution space, shows no sign of slowing down throughout South Florida. In fact, the pace of new construction picked up as developers raced to lock in development sites and break ground on new projects to meet tenant demand. Elevated industrial deliveries throughout the rest of the year will have limited impact on occupancy. Vacancy will likely remain tight and remain near current levels. Rental rates could potentially rise further 5 to 10 percent in some high-demand submarkets by the end of the year, with rents in Miami-Dade expected to close out the year above $10 per square foot overall for the first time.
Chris Owen is the director of Florida research at Cushman & Wakefield (CWK).