Overview of Industrial Space Availability

South Florida’s industrial market is currently facing challenges with a significant number of large vacant warehouse spaces. Data from Cushman & Wakefield shows that 48 industrial spaces larger than 100,000 square feet are available, totaling over 10 million square feet. This surplus is beginning to affect the overall market, with significant implications for the region’s industrial real estate sector.

South Florida Market Dynamics and Rising Vacancy Rates

The pandemic-era surge in South Florida’s industrial market has significantly receded, leaving large blocks of space unleased amidst a shift in tenant demand towards smaller footprints. As a result, the combined vacancy rate across Broward, Miami-Dade, and Palm Beach counties has doubled to 3.9% over the past year. Leasing activity has seen a notable decline, down 23% from 2019, with the first quarter of this year marking the worst performance in five years.

Erin Byers, an industrial broker at Colliers’ Miami office, noted that larger space blocks still need to be occupied longer than expected. This situation is exacerbated because rents have nearly doubled since 2019. Despite delivering 29 million square feet of new industrial space in the last five years and another 6 million square feet currently under construction, only 10% of this space is preleased, indicating a lag in demand.

Distribution Centers and Shifting Tenant Demand

The initial surge in distribution center leases during the pandemic has slowed considerably, with fewer large deals closing in recent months. Landlords with large projects are advised to exercise patience to secure tenants who can afford premium rates. While there is still some demand, Byers suggests it may not significantly impact market dynamics in the near term.

Christopher Thomson, a vice chair and industrial broker at Cushman & Wakefield, explained that hesitancy from corporate executives has delayed large deals. Regional managers are pushing for expansion, but national-level decision-makers are waiting for better economic conditions. This delay has caused logistical issues for companies, forcing them to adapt to higher interest rates.

Case Studies: Recent Warehouse Projects

Several recent projects illustrate the current challenges in the market. For instance, Prologis delivered an 186,000-square-foot warehouse at Prologis Seneca Park, but only 36,000 square feet have been leased. Similarly, Bridge Industrial is wrapping up construction on a 171,000-square-foot space at Bridge Point Port Everglades with no preleased space. Byers noted that institutional developers have the financial flexibility to wait for the right tenants without reducing rents, offering increased concessions like free rent and tenant improvement allowances.

Smaller Spaces and Market Rates

In contrast to larger spaces, smaller spaces under 25,000 square feet are leasing quickly, with solid activity up to 50,000 square feet but little activity above 100,000 square feet. This demand has helped maintain high asking rates, which have nearly doubled since 2019 but are beginning to plateau.

Many tenants facing lease renewals are finding that their rents have doubled. Some local tenants opt for more efficient spaces with higher rents per square foot, while many renew their existing leases after exploring the market. Byers noted that tenants often test the market to verify their landlords’ claims about market rent but frequently renew their leases.

Key Takeaways

  • Large Vacancies: Over 10 million square feet of large industrial spaces remain vacant in South Florida.
  • Increased Vacancy Rates: Combined vacancy rates have doubled to 3.9%.
  • Declining Leasing Activity: Leasing activity is down 23% from pre-pandemic levels.
  • Rising Rents: Rents have nearly doubled since 2019.
  • Smaller Spaces in Demand: Spaces under 25,000 square feet lease quickly, maintaining high asking rates.
  • Hesitancy Among Executives: Corporate executives delay large deals, impacting market dynamics.
  • Long-Term Outlook: Some experts predict an increase in significant announcements by the fourth quarter, but the overall impact on market dynamics remains uncertain.