Embedded fundamentals, such as trade flows through the air and sea ports, along with active residential development, provided strong demand for warehouse/ distribution space in the pre-recession period. While residential construction remains compromised, trade, with Latin America in particular, has returned as an active stimulus for industrial demand. Miami, like other southeastern port cities, also stands to benefit from trade volumes augmented as a result of the widening of the Panama Canal to accommodate larger ships. Completion is scheduled for 2014. In a recent report, moreover, Jones Lang LaSalle has cited increased tourism activity as a significant factor for growth.
Net absorption of warehouse/distribution space has been strong since late 2010. Following 1.59 million square feet in 2011, the net for first half 2012 alone was nearly as great at 1.47 million. July added 338,000 square feet more to the accumulating total. Vacancy, notably low by national norms for this product type, ended the quarter at 8.0%, down fully 60 basis points for the quarter, down 250 year-over-year. July’s strong demand lowered the rate to 7.8%. Strong absorption and low vacancy aside, landlords have been slow to impose rental increases, which have been seen only recently. At $6.52 psf and $6.09 psf, asking and effective averages for the second quarter were up 0.5% and 0.8% for the period and were up 0.5% and 1.0% since year-end. It may be noted as well that these rates are high by national norms for this property type. Indeed, high rents in the pre-recession period, an effect in part of high land prices and the strong demand for developable land, had become an impediment to absorption by driving any number of tenants to more affordable markets.
Speculative development has been limited but is increasing. The 189,700-square-foot Building 13 at Prologis’ Beacon Lakes business park in the Miami Airport submarket completed construction in July following a January start. Jones Lang LaSalle reports the building “already” leased at 75% to 3PD Inc. and Synnex Corporation. Both tenants, however, are relocating from other Miami business parks. Reis reports five other buildings with a combined total of 679,800 square feet of warehouse/distribution space currently planned for the Beacon Lakes development. Also under construction per report date is the 167,200-square-foot DCT Commerce Center at Pan American West Building A in the same submarket. Construction began in May. The completion date has not been specified. In addition, Jones Lang LaSalle reports an 800,000-square-foot build-to-suit cargo facility under way in the airport area for Centurion Air Cargo. Construction began last November. Centurion also will relocate from a local facility.
Also in the airport area, Flagler Development is planning the 144-acre, six-building South Florida Logistics Center. A third-quarter start is anticipated for a 170,000-square-foot building at the site, reports Jones Lang LaSalle. Liberty Property Trust purchased a 126-acre site in December in nearby Medley for the development of the Miami International Tradeport. Build-out over five years is expected. Reis reports nine buildings of varying size with a combined total of 1.8 million square feet planned for the park.
“[B]ased on Miami-Dade County’s strategic position related to Central and South America, the outlook towards the end of the year and the beginning of 2013 bodes well for improved market conditions,” comments Cushman & Wakefield. Reis expects a strong showing for the warehouse/distribution market for the year. Gains in the vicinity of 1.0% are projected for average rents. Construction has returned but is not expected to overwhelm the market.