Multi-bay, Multi-tenant warehouses in demand.

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What area is your expertise?
Industrial properties in Miami-Dade County (Miami) and Broward County (Fort Lauderdale).

What trends do you see presently in industrial development in your area?
Industrial development in South Florida is at a slow down and absorption is creeping along. Given the land constraints of the Atlantic Ocean and Florida Everglades, build-to-suits are also harder to find in Broward and Dade counties.

What type of industrial product is doing well in your area?

Multi-bay and multi-tenant warehouses are in high demand because they continue to absorb space for a variety of tenants from 500 square feet to 5,000 square feet. Many businesses that can function without their storefront locations are downsizing and moving their business to warehouses where they do not have to pay the high retail rental rates. Big box industrial warehouses over 65,000 square feet are also doing well. There is less demand for space over 10,000 square feet and under 65,000 square feet, as tenants desiring this size space are feeling more of the effects of the current economic downturn.

Please name one or two significant industrial developments in your area. What impact will these projects have on the market?
In Broward County, two of the largest deliveries are the additions to Seneca North Industrial Park located in Pembroke Park and Miramar Business Center in Miramar. Seneca North Industrial Park added a 261,300-square-foot facility and Miramar Business Center added a 238,390-square-foot building.

In Miami-Dade County, two of the largest projects scheduled for delivery are Flagler Station Bldg #29, a 171,730-square-foot building in the Airport West market and 3355 NW 114th St, a 130,000-square-foot building constructed as part of a build-to-suit project.

Where is the majority of development taking place? Why is this area doing well?
Lincoln Logistics Park is one of the largest planned speculative warehouse distribution centers. It broke ground in Medley (Miami-Dade County) in fall 2007.

What area do you expect to be the next big industrial development market? Why?
There is not a lot of available land in South Florida for new development, let alone room for large industrial parks. What we will see in the pipeline is the addition of buildings to existing parks and also redevelopment within those parks.

Please describe the industrial leasing activity in your area.
With the current economic condition, owners would rather take short-term lease tenants (two years or less) at below market rents than to have vacant space. This is the timeframe in which owners believe the market/economy will start to improve. Owners are also starting to offer concessions to fill vacancies.

Please describe the industrial sales activity in your area.

Investors are starting to purchase vacant, functionally obsolete warehouse buildings located in established industrial parks. If owners were to replace the buildings, the floor area ratio (FAR) would be significantly less than the existing building square footage and replacement costs would be high. By purchasing the buildings at a very low price per square foot, owners can invest significant dollars into rehabbing the properties. They are adding more dock doors, increasing the ceiling height and reconfiguring the space so that trucks can turn onsite. This allows them to compete with newer properties on the market.

Please give a measure of industrial vacancy rates and a measure of available sublease space.
Through year end 2007, vacancy in Fort Lauderdale was 5.2 percent, up 140 basis points from year end 2006. In Miami, year end 2007 vacancy was 6.1 percent, 80 basis points higher than year end 2006. I believe vacancy rates will rise in both markets.

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?
In first quarter 2008 there was a definite disparity in price between sellers and buyers. As we enter the second quarter, the difference between the price at which a seller is willing to sell and the price a buyer is willing to pay will narrow. However they will still need to overcome that gap.

Sellers who realize the implications of holding onto an under performing asset in the current market and who still seek a cash position are the same sellers who have now come to terms with the normalized market and lenders’ 2008 underwriting standards. They will come to realize and accept the expectations of the experts in the financial arena. Low interest rates are helping to offset elevated lender spreads and buyers must consider the potential for increases in long-term rates. If interest rates rise and lender spreads do not narrow, investors will be faced with higher borrowing costs.

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 foresee an increased demand for industrial space for import and export businesses, particularly for companies that trade with South and Central America. The drayage for goods in South Florida has increased- in part due to the increase in fuels costs. Users/tenants are beginning to think more in terms of cubic square footage rather than floor area square feet. They want to increase their storage capacity and decrease the drayage.

The areas that will absorb most of the space will be the Port of Miami, Miami International Airport and Port Everglades/Hollywood/Fort Lauderdale Airport’s surrounding areas. Miami-Dade has more export-oriented space while Broward offers more of a mix of industrial properties.

Submitted by Dan Cioci , associate, National Office and Industrial Properties Group with the Ft. Lauderdale, Florida, office of Marcus & Millichap. Posted 04/25/08.

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