South Florida Primed To Ride Continued Industrial Wave
The industrial market has been enjoying a record-setting run, and “the party’s not over,” according to Cushman & Wakefield’s 2018-19 North American Industrial Forecast Report. Perhaps no market in the country stands to benefit more than South Florida in the next two years.
Between now and 2019, North America is expected to see 655M SF of net absorption in the sector — the second-best period after 2014-2016, which saw 833M SF of net absorption.
“Demand will be most robust in port-approximate markets … and major population centers,” according to the report, making the outlook good for South Florida.
Miami tops the list of cities asking rent growth for warehouses, with about a 14% increase expected by 2019.
A Commercial Industrial Association of South Florida report found that, measured in dollar figures, industrial sales rose by 12% in 2017 compared to the year prior. Dixon Commercial Real Estate founder Tom Dixon told The Real Deal that investors wanted bigger facilities, more amenities and Class-A space.
That jibes with what Easton Group Chairman Ed Easton was seeing at the end of 2017. Easton's company, which he founded in in 1974, develops, invests in, owns and trades industrial properties.
Easton said 2017 was a very good year. Vacancy rates were just 1-2%. He has about 800 tenants at his properties, mostly in Doral.
“We were basically 100% full. I never had this in the 50 years I’ve been doing it," Easton said. "But it’s a little different competition than what it used to be. The small guys are not in it. They’re not able to compete.”
Easton said major players with portfolios, like Prologis and Invesco, have come to dominate the market.
“We’re one of the few who do joint ventures with these guys, and they like being with the local player,” Easton said.
In 2016, Invesco paid Easton Group $98M for a majority stake in a portfolio with 675K SF. Recently, Easton said, a 184K SF facility in Medley that the two companies developed together rented in three months.
"We thought it would take a year," Easton said.
Illinois-based CenterPoint is one of these big players, controlling 58M SF of industrial space in 325 buildings across the country. It invested more than $180M into Miami industrial property over the last 12 months — and wants more.
"Miami is one of the most dynamic and supply-constrained industrial markets in the country," Senior Vice President of Investments PJ Charlton said. "The combined influence of the port's overall importance in international trade, and a favorable e-commerce story that we are seeing take root in the market, all bode well for the industrial sector long term."
Charlton cited Miami's population — 6 million in the metropolitan statistical area — as a key factor. Easton said while he got into the industrial market because it was the cheapest, the population growth in Miami-Dade has benefited anyone who owns property.
South Florida's population grew 8.6% from 2010 to 2016, according to U.S. census data, and the Cushman & Wakefield report predicts it will continue to outpace the rest of North America.
Of course, with people come traffic woes, and those are influencing companies' choice of location, Easton said. Some decide it is worth paying more for a warehouse next to the airport in Doral rather than further afield in Hialeah or Medley, he said.
“If it costs $55 and hour to move a truck around, the cost of the truck ends up being more than the warehouse," Easton said.
Easton does not see demand dropping unless the population decreases or Wall Street sours on real estate.
Some other takeaways from the Cushman & Wakefield report:
- Cold storage is a growing arm of industrial, as demand increases for fresh produce and temperature-sensitive pharmaceuticals.
- Any changes to NAFTA could have a major effect on the industrial market, but talks go slowly and any adjustments would likely be implemented over a period of years.
- Even if tenants can find affordable warehouse space, staffing it will become a bigger challenge. With the labor market near full employment, “finding available and appropriately skilled warehouse labor, at modest wages, will remain a challenge through 2019.”