South Florida commercial real estate remained stable in late 2019. But will it last?
The health of the industrial, office and retail market in South Florida stayed relatively steady in late 2019. But will conditions last?
Vacancy rates and asking rents dipped for most asset classes in Miami-Dade County while increasing for Broward, according to the Colliers International fourth quarter 2019 reports. An uptick in tourism, the population, wages and jobs is fueling the commercial real estate market, said Kenneth Krasnow, the Colliers International vice chairman of institutional investor services for Florida.
“The markets are still expanding,” said Krasnow. “We are building more supply but demand and supply are still in balance. The demand drivers are fundamentally in place. As long as the demand remains strong, then the market will remain healthy.”
But, Krasnow said, some office markets are expected to suffer in the future as more companies see South Florida as a region, each county complimenting the other, instead of three separate markets. The expansion of Virgin Trains will encourage companies to have one large office space in the county for the company’s largest employee population, and co-working spaces in the other counties.
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Miami-Dade County
Industrial vacancy rates remained stable from the third quarter of 2019 at 4.1% with e-commerce fueling the market, according to the Colliers report. There were 878,321 square feet of new construction completed and 4,277,133 square feet of additional industrial space in the pipeline.
The asking rents for warehouse and distribution centers decreased slightly by 2.5% from the third quarter of 2019 to the fourth quarter, from $10.05 per square foot to $9.80 per square foot. The asking rent also decreased from the fourth quarter 2018, when it was $11.10.
“Rates are down because we are adding a lot of supply,” Krasnow said. “Vacancies are not shooting through the moon because of the demand. It is the most sought after asset class in the market.”
Office vacancy rate increased by 0.1% from the third quarter of 2019 to the fourth quarter, settling at 9%. There were 133,800 square feet of new construction delivered and 3,507,219 square feet under construction, reaching a 10-year high. Despite the demand for new office space, some areas, including Wynwood, are slow to absorb the new inventory.
Rents increased by 3.5% from the third quarter to $39.54 per square feet.
The new inventory is leading to a flight to quality from Class B office spaces to Class A office spaces. Companies want the amenities that often come with new inventory, including wellness and lifestyle activities, and snacks bars and yoga classes.
“People have realized that it’s all about labor — how to attract and retain talent,” Krasnow said.
Existing office buildings are trying to remain competitive by providing an updated lobby or amenity space for existing tenants, including the Wells Fargo Center in downtown Miami.
Retail vacancy rates remained stable from the third quarter of 2019 to the fourth quarter at 4.5%. There were 177,662 square feet of new construction delivered and 2,938,250 square feet in the pipeline. Asking rents decreased from the third quarter to the fourth quarter, from $39.39 per square foot to $38.18 per square foot. Still, the fourth quarter rents in 2019 were higher than in the fourth quarter 2018 with $34.81 per square foot.
Regarding the quarter-to-quarter drop, Krasnow said, “When you are adding supply, it’s hard to drive pricing. It’s a temporary phenomenon.”
Broward
Industrial
Warehouses and distribution centers had a 5.9% vacancy rate, a 1% increase from the third quarter 2019. According to the Colliers fourth quarter 2019 report: “The Broward industrial market experienced the largest amount of completed construction in a single quarter in the last 10 years, 895,457 square feet.”
The asking rents for warehouse and distribution space increased by 2.4%, from $8.87 per square foot in the third quarter to $9.08 per square foot in the fourth quarter. The asking rent is also an increase from the third quarter in 2018 with a asking rent of $8.30 per square foot.
Office
The vacancy rate at 9.2% was a 0.3% increase from the third quarter to fourth quarter. There were 15,000 square feet of new construction delivered and 1,853,200 square feet under construction.
Asking rents in the office market increased by 1.1% from the third quarter 2019 to $32.06 per square foot.
The urbanization of Broward cities, including Fort Lauderdale with Flagler Village, will draw more office tenants, Krasnow said.
Spirit Airlines is expected to fill a large portion of the office market with a 500,000-square-foot headquarters in Dania Beach; one department of the company will relocate to Nashville due to hurricanes.
Retail
The 4.3% vacancy rate was a 0.1% increase from the third quarter 2019. There were 166,356 square feet completed in late 2019 and 1,165,647 square feet under development. Asking rents dipped from $23.33 per square foot in the previous quarter to $22.85 per square foot. The asking rent was still higher than in the fourth quarter 2018 at $20.44 per square foot.
This story was originally published February 21, 2020 at 7:00 AM.
