Deep Dive into the Florida Industrial Market
Industrial real estate has experienced a significant surge in growth in recent years, with increasing demand for warehouse and distribution facilities and manufacturing plants. Several factors have driven this growth, including the rise of e-commerce, the expansion of global supply chains, and the growth of advanced manufacturing technologies. As businesses adapt to changing consumer and market demands, the demand for industrial real estate will remain strong, making it an attractive investment opportunity for developers and investors alike.
The team at Rockval collaborated with Cushman & Wakefield's Senior Research Manager Eric Messer to discuss the ramp-up and current state of the Florida industrial market. In Florida, the firm has over 800+ employees and 150 brokers, including Messer and his research team tasked with tracking all industrial assets over 20,000 square feet. In his 20-year career as a researcher, he never expected to see industrial assets undergo the pace of growth seen in recent years.?
The Ramp Up
Florida's three main industrial markets are Miami, Jacksonville, and Tampa. Each area has international ports supporting the South, North, and Central Florida markets. According to Messer, 2015 marked the beginning of Florida's industrial boom. The primary trigger event was the completion of the Panama Canal expansion in 2016. In anticipation of the canal's completion, the ports of Miami, Tampa, Jacksonville, and Fort Lauderdale underwent expansion projects to accommodate the Super Post Panamax mega-ships. In addition to the port expansions, e-commerce transactions were multiplying; in 2015, e-commerce sales volume grew 14% year-over-year. As industrial developers recognized the future demand, construction began to ramp up.
According to Cushman & Wakefield's, Florida's Industrial Stabilization report (2022), the average stabilization time for all markets was cut in half compared to 2015. Assets are considered stabilized once 90% of the building is leased. Jacksonville has the lowest average at 1.6 quarters, while Fort Lauderdale/Palm Beach was the highest with 3.8 quarters.?
From 2015 to 2019, the industrial market remained solid and steady. Then the global pandemic hit, resulting in people working from home, ordering groceries online, aimlessly browsing on Amazon, and launching their own Shopify business. The pandemic also prompted Florida's population growth; the new residents also brought along their businesses, while large corporations followed suit. All factors amplified the demand for e-commerce, owner-occupier, and 3rd party logistics uses of industrial space. Subsequently, demand began to outpace development resulting in record low vacancy rates and rents; as of Q4 2022, the average rent in Florida was $10.27 at a 3.1% vacancy rate.?
Miami-Dade
The Miami-Dade industrial market has been one of the strongest in the country. The city is home to 2.6 million residents and has grown in population 9 out of the previous 11 years. It has business influences from the companies looking to capitalize on the access to Caribbean and South American markets. Most investment and new tenant demand have come from the North Eastern United States.?
Last year's leasing was robust, with the total market absorbing 5.3M square feet; net absorption for this quarter was 684,846/SF.? According to Messer, preleasing continues to remain strong even in proposed construction. Miami-Dade delivered 5.63M square feet in 2022, but more was needed to ease demand. The Q1 direct vacancy rate is 1.6%, pushing rents 14.6% higher YOY. As of Q1 of this year, the overall average asking rent is $13.83/PSF, a 3.50% increase from the previous quarter. Net absorption for this quarter was 684,846/SF.?
Tampa
Tampa is considered the most affordable market compared to Miami and Jacksonville, but its access to the southeastern United States has become a hub for western-based companies. Tampa's new tenants come from California, Colorado, and Texas looking to capitalize on the Port and access the I-4 corridor.?
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While Tampa’s vacancy rate of 4.8% is higher than other Florida markets, it is still considered “tight market conditions.” Nevertheless, the market is constrained, with minimal developable land, pushing development east along the I-4 corridor into Lakeland. Last year the market saw 5.5M square feet of absorption and an average rent growth of nearly 14%. Tampa had a strong Q1, with absorption totaling 1.5 million square feet. The most robust yet most constrained market was Pinellas County. The average rent in Pinellas County is $9.38/PSF, compared to Hillsborough County at $7.19/PSF. Last year, Investment sales volume was $1.5 billion and is expected to continue throughout this year as Tampa is the 15th fastest-growing metro in the country. ?
Jacksonville?
Jacksonville is Florida's largest city geographically and the state's second top-performing industrial market. According to Jacksonville Port Authority, "In the fiscal year 2022, JAXPORT moved nearly 1.3 million containers, maintaining its position as Florida's largest container port and one of the top 10 container ports in the nation."
It is considered an affordable gateway to the southeast, with average asking rents at $6.93/PSF, a 17.4% YOY increase. Miami, Orlando, Tampa, and Atlanta are all within a five-hour drive. The direct vacancy rate is 1.9%, taking, on average, 0.3 quarters for asset stabilization. Over 1.86M square feet were delivered in 2022, and an astounding 6.2M square feet is currently under construction.?
Future of Florida Industrial
Some have questioned Florida's ability to cope with the population and economic growth, but the recent Bipartisan Infrastructure Law grants Florida $5.2 billion to improve roads, bridges, ports, and airports. This year alone, Florida will receive $2.5 billion for transportation projects supporting shipping and 3rd party logistics throughout the Southeast.
Although Messer thinks the market will naturally level out during this economic period, he is confident about the market's continued growth. "What you're seeing in Florida are the new cities of America versus New York and Chicago, which are great cities on their own, but I think that's what's making Florida stand above is the newness, ease of doing business, and favorable tax environment," Messer said.
Sources:?
Florida Industrial Stabilization Report: https://www.cushmanwakefield.com/en/united-states/insights/us-articles/a-historical-look-at-floridas-industrial-stabilization-expectations