Development slows and rental rates flatten out.

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Greg Zeifman is a senior associate in Marcus & Millichap’s Miami office.

What area is your expertise?
• Miami-Dade County Industrial Properties

What trends do you see presently in industrial development in your area?
• I do not foresee any new starts in the Miami-Dade industrial market. Although developers will finish projects that have already begun, there will be no new significant development. The recent addition of institutional, big-box product in the northwest Miami-Dade Medley submarket will lease-up its vacant space.

What type of industrial product is doing well in your area?
• Newer, Class A and B product continues to do well. However, owners must keep rents stable or lower them. Small to mid-range tenants who previously occupied Class C or functionally obsolete properties now have renegotiating power and are able to move to nicer locations. Properties in close proximity to the airport will enjoy higher occupancy rates; whereas, properties in the east Miami-Dade market, such as Hialeah, where product tends to be functionally obsolete, will experience the highest vacancies.

Who are the active industrial developers in your area?
• Flagler Development Group is an active developer in the Dade market.

Please name one or two significant industrial developments in your area.
• Building 200 in Lincoln Logistics Park in Medley was one of the most noteworthy recent deliveries. The 342,750-square-foot building is one of three, Class A buildings that will be located in the park. Designed to serve larger tenants, the park is developed by Lincoln Property Company.

Ave Commerce Park is currently developing a 200-acre commercial aviation park near Opa-Locka Executive Airport. In addition to new FBO facilities, corporate, maintenance and cargo hangars, the development will also include retail, office and warehouse space.

Where is the majority of development taking place? Why is this area doing well?
• Most development is taking place in Northwest Miami Dade/Medley due to the fact that the area still has large tracts of land available for large-scale development projects. Development is also taking place near the Opa-Locka Airport because of recent land leases given to developers by the city. Because of the county’s land constraints, most projects in Miami-Dade that are not located in outlaying areas are smaller infill projects.

What area do you expect to be the next big industrial development market? Why?
• Because of Miami-Dade’s land constraints, there is a lack of available space. The area west of the Turnpike may see a jump in development in the future.

Please describe the industrial leasing activity in your area.
• I do not foresee any rental increases in the near future. Rental rates will most likely stay flat or be reduced minimally in order to keep tenants.

Please describe the industrial sales activity in your area.
• Sales of industrial product in Miami have slowed and few large-scale transactions are expected. Sellers are still not realistic in their pricing and although institutions are strong, they are in paralysis mode and not in a position to buy or sell. For now, they are in a holding pattern and are focused on operating their properties and retaining tenants. We see private equity players buying distressed assets such as industrial condos. Because lenders are scrutinizing stability and most smaller-bay product in Miami-Dade is occupied by mom and pop tenants, most smaller deals are not bankable in today’s market.

Please give a measure of industrial vacancy rates and available sublease space.
• At the end of 2008, the industrial vacancy rate in Miami-Dade County increased to 8.2 percent, the flex projects vacancy rate was 8.8 percent and warehouse projects reported a vacancy rate of 8.1 percent. The amount of sublease space in the county increased to approximately 799,000 square feet of industrial space, 85,000 square feet of flex space and 714,000 square feet of warehouse space.

The highest vacancy rates will be evident in more obsolete product due to the fact that businesses that use these spaces (kitchen cabinet companies, mom and pops) are going out of business. Larger and more functional spaces occupied by distribution companies are more stable as import and export businesses continue to do well.

What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in the next year?
• Interest rates will stay stable and not have as much of an impact on the industrial market due to the lack of liquidity in general. Rates have not changed much since yesterday’s market and remain between 6.0 and 6.5 percent depending on the sponsor and the specific deal. In the future, interest rates and cap rates will rise higher than we are accustomed to. Now is the time to own property. It is the best way to hedge against the inflation we will see coming out of the recession.

What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected?
• Users will expand in the next year more so than investors. Although many users are in industries that are not as prosperous as they had been previously, some food and beverage companies and import-export businesses are not as affected and will absorb space. These owner-users will most likely seek space in the Airport Submarket for easy access to transportation routes.

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