1. What trends do you see presently in industrial development in your area?
There are no new developments breaking ground and few nearing completion. There has recently been drastic increases in industrial product vacancy rates which, inherently, has compressed lease rates. I do not expect to see any new projects breaking ground until the current vacancies are absorbed and lease rates stabilize.
2. What type of industrial product is doing well in your area?
Large warehouse/distribution buildings with 24-foot+ clear height continue to outperform the market vacancy rates but are still subject to lease rate compression as business revenues continue to decline.
3. Who are the active industrial developers in your area?
Prologis
Butters Construction
REMS Group
4. Please name one or two significant industrial developments in your area. What impact will these projects have on the market?
The 595 Park of Commerce, located directly off I-595 halfway between Downtown Fort Lauderdale and Weston, has recently completed its first of three phases. Upon completion, the 595 Park of Commerce will consist of 18 office, retail and warehouse buildings. The developers, REMS Group, have been able to adapt to the challenging conditions of today’s market by offering tenants an array of leasing opportunities as well as condo ownership. The 595 Park of Commerce is a prestigious development that will attract many of the new tenants entering this area as well as existing tenants desiring an upgrade. Because of this, the 595 Park of Commerce will essentially establish the high-end market lease rates that the competing product will lag.
5. Where is the majority of development taking place? Why is this area doing well?
Industrial development is taking place in Coral Springs and Davie. These markets have a strong local economic demand for institutional quality product, which is supply constrained.
6. What area do you expect to be the next big industrial development market? Why?
An imminent expansion of Port Everglades will not only reverse some of the construction job losses recently recorded but also heighten demand for warehouse/distribution space that serves the port. I believe you will see an increase in development in Southeast Broward as supply is limited and occupancy rates continue to remain relatively high as compared to the rest of Broward County.
7. Please describe the industrial leasing activity in your area.
All submarkets of Broward County have experienced an increase in vacancy. The lack of new business start-ups coupled with an increase in businesses closing their doors has created a demand among landlords for a declining tenant base. Inherently, rental rates have retracted and concessions are being made to tenants whom now have more leasing options. Leasing has become a function of price as available space has exceeded tenant demand.
8. Please describe the industrial sales activity in your area.
The industrial market has seen a decrease in investment sales velocity as buyers underwrite to higher cap rates and conservative NOI’s, widening the buyer/seller gap. The majority of sales activity has been owner/user purchasers as banks are more willing to lend to this type of buyer.
9. Please give a measure of industrial vacancy rates and a measure of available sublease space.
A decline in demand for existing space in addition to slow absorption of recently completed properties will underpin a 200 basis point climb in the vacancy rates this year to 12 percent. Negative net absorption of 1.4 million square feet will be recorded.
10. 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?
The investment sales market continues to normalize as deals are underwritten based upon risk adverse cash flow assumptions. Buyers are seeking positive leverage when buying stabilized deals. I predict interest rates will rise over the next couple of years to curb inflation which will increase cap rates. This coupled with eroding NOI’s will most likely compress pricing over the next 2 years.
11. What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected?
I expect import/export and gambling-related industries to lead expansion in the industrial market.
12. Would you like to make any additional observations about the industrial market in your area?
The current economics of the Broward County industrial market has created a favorable buying opportunity for long-term operators. Given the state of the economy, vacancies have spiked and lease rates diminished. Buying positively levered returns based upon current vacancy and lease rates in today’s market will prove to be lucrative over time. As the credit markets loosen and the national economy strengthens, the supply constrained Broward County industrial market will experience a rapid increase in occupancy and lease rates. In addition, as the market show signs of stability, disposition cap rates will compress as risk tolerance will increase.
— Ryan Nee is an associate in the Fort Lauderdale office of Marcus & Millichap. He specializes in Broward County Industrial Properties – Investment Sales.