Will 2010 be better, the same or worse?
Let’s first look at how we ended 2009. The average vacancy rate has slightly increased to 10.3% and lease rates have fallen to an average of $7.44 psf gross. The total amount of annual transactions for both leased and sold industrial properties have decreased significantly.
Many businesses remained in a holding pattern for the years 2008-2009. The more aggressive landlords are being forced to offer very significant rental concessions such as: six months of free rent; large tenant improvement allowances; and reduced rent. It is not uncommon for a landlord to offer the first year of a lease term at half-rate or just enough to cover their operating expenses. Financing both businesses and/or properties are still a concern, however there are enough lenders out there ready, willing and able to finance quality, credit owner-user applicants.
Overall, the industrial market in Miami has held up better than the other property-types such as office, retail, residential, etc. Listed below are some very significant trends that our team thinks will have an impact on Miami-Dade County’s industrial real estate in 2010:
- Until vacancy stabilizes and/or falls, there will continue to be low construction of additional warehouse space. This is good news for landlords who fear more competing buildings. The bad news is that many of the construction and building-supply businesses make up a large segment of tenants occupying warehouse space. Some have now had to downsize and/or close altogether. Others are looking into green retrofitting and construction, building other property-types altogether and/or exploring foreign markets. Read more on the impact of Green building from ComReal’s expert, Louise Bendix.
- The County’s unemployment rate is now 11.3%. Companies are looking for ways to keep employment costs down and will try to outsource much of their business where possible. (Example: some 3rd party logistics companies have seen their business increase significantly). The good news is that there is an abundance of good, talented employees available to hire.
- Watch the retail market. Less consumer spending means lower demand for retail products and therefore less inventory will be stored in nearby warehouse spaces.
- Follow the money. Where are our tax dollars going? One of our best customers in the service & repair industry was seeking about 100,000 sq. ft. of warehouse space here in Miami. However, they decided to instead move their operation to the Midwest in order to receive federal stimulus money and incentives such as warehouse space for only $1.00 psf and free training for their employees. Sorry Miami!
- BIG government means BIG demand for commercial real estate. Government agencies continue to grow and acquire more industrial properties including Miami-Dade County Animal Services Department that is seeking to purchase a 50,000 square foot industrial building. Yes, this is true. Even in a recession, the County must have a new state-of-the-art dog pound!
- Our new word for 2010: “re-purposing”. Class C and other dis-functional warehouse buildings may either become obsolete or need to be “re-purposed” as they have done in the Wynwood and Design Districts. Green retrofitting is for real and must be seriously considered. It is all about making commercial properties more operationally efficient and reducing utilities expenses. Buildings that have been neglected, have major defaults and/or are in desperate need of repair will see the most significant decrease in value. Perhaps they will even be worth less than their land value if the buildings need to be demolished. Warehouse users prefer more functional, class A buildings with higher ceilings, security systems and overall good construction, such as Beacon 97th Avenue Business Park in Doral.
- Speaking of “re-purposing”, we are also seeing this trend in our commercial real estate profession. Many CRE brokers are retooling and reeducating themselves. According to the Florida Association of Realtors, membership is down by about one-third for those who have moved on to other careers.
- There are several major construction projects that will significantly shape the future of our industrial warehouse market: 1) Port of Miami’s new Tunnel and it’s dredging of the channel to 50’ in depth. 2) Expansion of the interchange of the Dolphin (SR 836) and Palmetto (SR 826) Expressways; and also the construction of the 25th Street Viaduct which will allow cargo to move from MIA west into the City of Doral. 3) The addition of the 800,000 sq. ft. cargo facility and the Intermodal at Miami International Airport. 4) Prediction: rail-served warehouse buildings in Miami will see an increase in demand in the next couple years as products are imported to the Port of Miami and then railed further up north. Here is an 127,000 sq. ft. warehouse for lease or sale on the FEC Rail and adjacent to Miami International Airport: www.MiamiAirportWarehouse.com.
- Our customers report in each of their respective industries that federal, state, county and municipal government bureaucracy and taxation are all negatively influencing their businesses (No surprise here).
- “Miami: Gateway to the Americas”. Firms doing business on an international level still choose Miami due to its language capability, established trade routes and relationships abroad. We continue to see foreign companies locate a new warehouse facility in Miami for the primary purpose to do business with Central & Latin America and the Caribbean. ComReal is currently expanding a manufacturer from the Dominican Republic that values Miami’s air cargo routes to more international airports. A Canadian logistics company prefers a new Miami address so it can better enter and compete in the foreign markets of Brazil, Mexico, Colombia, and more.
As we can see, there are both positive and negative forces that can impact Miami’s industrial real estate market for better or for worse. Every industrial property and business is very unique.
In case you missed our prior report, you may click this link for ComReal’s Miami Industrial Real Estate Market Report. >>>