A former Miami golf course turned into an industrial park. A Hollywood warehouse chopped up into six smaller offerings. And a bidding war over industrial space in East Hialeah.
Commercial brokers recount these tales in South Florida, a market with high demand for warehouses but not enough industrial-zoned land for new development. Industrial experts must turn to creative problem solving, as a reluctance to visit brick-and-mortar stores has led to a boom in online shopping and a burgeoning need to store appliances, food and other goods.
Miami-Dade County may only have about 500 acres of developable industrial land left, mostly controlled by institutional developers and real estate investment trusts.
“New, desirable, Class A warehouses take up about 10 acres each,” said Jonathan Kingsley, an executive managing director at Colliers International’s local office.
“That available land translates to 9 million square feet of warehouse space, in a year that Amazon has leased or bought about 2 million square feet and Home Depot has leased another 1.1 million square feet,” said Steve Medwin, Newmark’s executive managing director and co-lead of the South Florida Industrial Services division. “E-commerce companies want warehouses as large as 100,000 square feet, with 32-foot-high clear ceilings. The land constraint worsens northward — Broward County might only have about 400 acres of developable land left, and Palm Beach County might have 250 acres.”
South Florida’s land shortage puts it on par with the industrial markets of Los Angeles and Northern New Jersey. In Seattle and New York, developers take inspiration from Asia and plan for mega multi-story warehouses, an asset that is still five to 10 years away in South Florida, brokers say.
Some real estate professionals see signs of a bubble in the nationwide industrial boom. According to real estate research firm Real Capital Analytics, values for industrial properties rose 8.5 percent in the past year, while retail real estate values fell 5.2 percent and offices stayed steady.
JLL’s third quarter report identified weakness in the South Florida market, ranking Miami-Dade and Broward counties No. 2 and 3 nationwide for the amount of industrial space that returned to the market during that quarter. Palm Beach County ranked No. 6. But brokers say that when tenants vacate an industrial space for larger and newer warehouses, it can take at least six months for a new tenant to move in. The brokers expect South Florida’s fourth quarter results to show high absorption rates from new move-ins.
Meanwhile, South Florida’s third quarter industrial vacancy rates were below 10 percent, according to JLL. Miami’s vacancy rate was 7.6 percent, with an asking rent of $7.43 per square foot. Broward had a 9 percent vacancy rate and an $8.50 per square foot average asking rent. Palm Beach’s vacancy rate was 5.2 percent, with an average asking rent of $9.40 per square foot. In the third quarter, almost 3 million square feet of industrial space was under construction in Miami, among 4.5 million square feet under construction in the tri-county area.
“In the land of scarce land availability, developers and investors do what they can with what they have,” said Medwin of Newmark.
Among the properties his team markets is 800,000 square feet of spec industrial space at Eastview Commerce Center at the southern half of the former Westview Country Club near Opa-locka.
The developer, Panattoni Development Company, bought the land from a former country club member and was prepared to invest millions in remediation and reconfiguring the golf course.
“It took three years for the lengthy zoning process and to address the environmental impact,” Medwin said. “The zoning delay is par for the course for newcomers to South Florida.”
In the end, Panattoni’s bet paid off. The $100 million business park at Northwest 24th Avenue and Northwest 119th Street was completed in January and is currently 98 percent leased. Rents at the park are more than $8.50 a square foot triple net, with tenants including Caterpillar and produce distributor Mr. Greens.
Panattoni has moved on to another redevelopment project. Last year it paid $24.3 million for a 20-acre dairy farm nearby with plans to build another spec warehouse project.
“The only way to own industrial land in South Florida is to get creative,” Medwin said. “If you’re an institutional developer who wants industrial property in this thriving port market, you have to go through this pain.”
Sometimes, overbidding is also required. Starting this summer, Kingsley of Colliers helped a longtime client look for overflow warehouse space in Miami-Dade County. The client, a third-party logistics company, toured four spots in four weeks. By the end of that period, three of them were snatched up. The company now has an offer for a 40,000-square-foot, second-generation warehouse built in the 1960s in East Hialeah.
“To get the space, the client will likely have to pay more than the landlord is asking. For this property in a place like East Hialeah, rates range from $6 per square foot to $8 a square foot,” Kingsley said. “The bidding process is expected in a constrained land market. It existed even before Covid-19 and it will outlive the pandemic.”
Creativity in the industrial market can come in many forms, brokers say. After more than 40 years in South Florida real estate, Alan Levy considers a Hollywood warehouse among his most complicated deals.
Levy and his son, Josh, at Levy Realty Advisors, had a client with a dilapidated 30,000-square-foot Hollywood building that had cycled through various uses over the years, including as the site of defunct toy store chain Lionel Playworld. But the property near the intersection of State Road 7 and Pembroke Road had a mixed-use zoning that allowed for redevelopment.
“I saw a diamond in the rough,” said Levy, who works with private equity firms and family offices to find long-term real estate investments. “I saw the potential.”
Levy and his team entertained offers for his client to either sell the property or lease it to one tenant. Instead, Levy spent nine months and $1.7 million for work on the building, subdividing it into five units. The building is now fully leased to tenants that were looking for 24-foot clear ceilings, a little shorter than the height e-commerce tenants demand. The space is leased at an average of $12.50 per square foot triple net.
“In South Florida, you cannot buy this kind of land,” Levy said. “You could never accomplish what we did for what we put into it.”
Source: The Real Deal