Amid a record-breaking year for Miami-Dade County in 2021, industrial market fundamentals grew even stronger in the first quarter of 2022. Last year, the national industrial market saw unprecedented activity resulting from unlimited investment capital from Wall Street, private equity firms and REITs deploying significant capital into buying existing income-producing property and development sites.
In the first quarter of 2022, market fundamentals continued to heat up in Miami-Dade County and are expected to continue to attract investors and developers that are looking to capitalize on a growing population and soaring demand for warehousing space.
The ongoing global supply chain challenges are forcing existing tenants’ requirements to include additional warehouse space for storage. Simultaneously, new-to-market tenants are continuing to flock to the area, despite a shrinking supply of available space.
Together, this confluence of activity triggered a record low vacancy rate of 2.7 percent in Miami-Dade County in the first quarter, a 150-basis-point decrease year-over-year. Rental rates also reached a record high of $11.80 per square foot triple-net, which is an increase of 8.3 percent year-over-year.
We expect continued growth in port markets, as well as increased leasing activity from third-party logistics and e-commerce tenants. In 2021, Amazon leased multiple locations throughout Miami-Dade County totaling several million square feet with sites ranging from 200,000 to over 1 million square feet. The Home Depot also recently purchased a 1 million-square-foot warehouse in Hialeah for home delivery and FedEx just leased 500,000 square feet from Duke Realty in its Miami 27 warehouse in Medley.
Hialeah, Medley and Hialeah Gardens remain hot spots since access to the Florida Turnpike and Palmetto Expressway remain important transportation drivers. Logistics, building supply and warehousing firms have been leasing these buildings quickly and at premium prices. Hialeah is home to what will be the second-largest business park in South Florida upon completion, Countyline Corporate Park.
The Russia- Ukraine war has caused disruption to the imports from Russia and Ukraine leaving South Florida companies vulnerable to additional cost increases, delays and competition for scarce substitute materials. Nonetheless, while South Florida exports totaled $10.1 billion in 2021, just 1 percent was exported to Russia and Ukraine (approximately $84 million to Russia and $17 million to Ukraine). Imports to South Florida totaled $27 billion in 2021, of that only $160.5 million came from Russia and $7.7 million from Ukraine.
In the face of rising costs on materials and labor and construction, rental rates in 2022 are increasing at a pace never seen before in the South Florida region. Inflation has surged the cost of doing business across the board.
To offset the increase in costs, landlords in the South Florida region have responded by trickling down costs to the tenant. As landlords fight to keep up with the fast pace of change, shorter-term deals are becoming the norm and concessions like TI allowances and free rent are diminishing.
Despite challenges surrounding construction timelines and costs, South Florida delivered 9 million square feet in 2021, leaving 6 million square feet currently under construction and 10 million square feet slated for development in the next 18 months. Land sales reached $2 million per acre in Miami-Dade in 2021, likely creeping up to $3 million per acre in 2022 due to land constraints.
Miami’s industrial market is in a position of strength entering 2022, and landlords are expected to navigate the ongoing challenges surrounding materials and inflation through proactive efforts. Rents are expected to increase further from their current double-digit range and will be sustained by the intense demand for new quality distribution space.
— By Erin Byers, Managing Director of Industrial Services, and Steve Wasserman, Executive Managing Director of Industrial Services, Colliers. This article was originally published in the May 2022 issue of Southeast Real Estate Business.