International Trade, Population Growth Allow Miami’s Industrial Market to Thrive

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Miami, the “Gateway to Latin America and the Caribbean,” boasts one of the strongest industrial markets in the nation, with over 200 million square feet of industrial space serving one of the fastest-growing metropolitan areas in the United States. Stronger-than-average population and employment growth count among the region’s chief demand drivers, along with robust international trade, a booming housing market and a globally acclaimed tourism industry. South Florida’s population is expected to grow by 100,000 people annually over the next five years, while the region also has the fourth-highest job growth rate in the nation. As a result, demand for housing and consumer goods is rising, creating a very dynamic industrial development, leasing and sales environment.

Significant and ongoing investment in South Florida’s seaports, airports and intermodal transportation infrastructure is giving investors and businesses confidence in the long-term growth of the region. On the infrastructure front, there is the highly publicized, $2 billion expansion of PortMiami, one of the busiest ports in the U.S. for container traffic. The project includes a deep dredge, the addition of several post-Panamax gantry cranes, an intermodal/freight rail linkage, and a new truck/freight tunnel. Once completed this year, PortMiami will be the only port south of The Port of Virginia able to accommodate post-Panamax vessels.

Miami International Airport (MIA) also expanded its air cargo operations, enabling it to move over 2 million U.S. tons of freight in 2014. Roughly 85 percent of all air imports and 80 percent of all exports from the Latin American and Caribbean regions pass through MIA. Imports are largely perishables, while exports are high-tech commodities, textiles, telecommunications equipment and pharmaceutical goods. Both PortMiami and MIA, and surrounding warehouse districts and municipalities, are under a new, comprehensive free trade zone designation intended to expedite and encourage foreign commerce.

Development
After several years of almost no new industrial construction, Miami experienced an industrial development boom: almost 4 million square feet of new, Class A industrial product was delivered in Miami-Dade over the past three years, and another 3.4 million square feet is in the pipeline. Completions are barely keeping pace with demand, as Miami has posted 4.8 million square feet of positive absorption over the past 21 months.

As many tenants embark on a flight to quality, much of the new product — which offers 30- to 36-foot clear heights, wider column widths, deeper and more secure truck courts, trailer storage and high-efficiency T-5 lighting — is either fully or partially pre-leased. Some of the larger completions of 2014 included Flagler Station Building 32, 80 percent pre-leased to tenants including Bed Bath & Beyond; Flagler Station Building 34, 87 percent pre-leased to tenants including Starboard Cruise Services; and South Florida Logistics Center Building 2, 40 percent leased to floral company The Elite Flower.

Leasing
Miami’s industrial market saw healthy leasing activity throughout 2014 and into 2015, with 2.5 million square feet of positive absorption recorded in 2014, and 849,588 square feet of positive absorption recorded in the first quarter of 2015 alone. This pushed vacancy to a record low of 4.2 percent in the first quarter of 2015, down 40 basis points from this time last year, while asking rates rose to $8.18 per square foot, up from $8.02 per square foot at the end of 2013.

Freight-forwarding, third party logistics, aviation and food and perishables companies continue to be the most active, with the majority seeking space in the sub-30,000-square-foot range. In the past few months, however, there has been a noticeable uptick in large users (over 100,000 square feet) seeking Class A product in South Florida, and all signs indicate that this is just the beginning. Some of the largest leases of 2014 include Amazon.com, which leased 335,730 square feet at Miami International Distribution Center, and Pilot Freight Services, which leased 148,610 square feet in Miami International Commerce Center. With the strong demand for space, rents will continue to inch up further.

Investment Sales
Miami remains one of the most desirable investment markets in the country, with institutional investors and foreign capital alike clamoring for prime assets, and demand from other users — primarily multifamily — putting upward pressure on pricing. Add to this dynamic the fact that Miami’s industrial market is severely supply-constrained; with the Atlantic Ocean to the east and Everglades to the west, land is finite.

This is reflected in some of the larger sales of the past year, which include Prudential Real Estate Investors’ $95.8 million acquisition in April 2015 of Centergate at Gratigny, a 978,184-square-foot, Class A distribution building and adjacent 27-acre development parcel located in Hialeah. Smaller, but still significant, deals include the sale to Terreno of an 85,000-square-foot building in Medley for $8.9 million, or about $105 per square foot.

Miami’s position as a gateway city and global logistics hub will only strengthen as we move into 2015 and beyond.

— By Devin White, First Vice President, CBRE. This article originally appeared in the May 2015 issue of Southeast Real Estate Business.