South Florida Industrial Re:Cap

February 21, 2023

South Florida industrial is coming off a record-breaking stretch. Rent, sale prices, and demand have been at all-time highs. The increase in the tri-county population and strict land constraints have driven demand through the roof. As a result, by the end of 2022, Broward and Palm Beach County's vacancy was sub 4%, while Miami-Dade was sub 3%. In addition, leasing activity was robust in all three counties; total absorption was nearly 7M square feet.

With two generations of development and brokerage experience in the industrial market, the team at Rockval speaks with Rick Zorovich - Industrial Real Estate Advisor, regarding the current state of the South Florida market. Rick is the Vice President of Industrial Commercial Specialists (ICS) and an educator at The Massimo Group. ICS is a family-run business; Rick's dad, Fred Zorovich, was responsible for 1.5 million square feet of industrial development in South Florida. Today, they own and operate 436,000 square feet in the tri-county market.

This past year ICS acquired two assets in Delray Beach. One property was a 16,000sf small bay industrial, purchased at $130/SF. Zorovich says it is valued at over $200/SF in today's market. Since its purchase, ICS has been able to slowly raise rents to market, reducing the amount of turnover. At the time of sale, rents in this property were at $12/SF gross. However, it has nearly doubled as East Delray's market rent is nearing $22/SF. Even with the notable rent increase, demand continues as Zorovich receives inquiries daily. Delray industrial inventory is in high demand because it is positioned perfectly between Fort Lauderdale and West Palm Beach with easy access to I-95. Over 685 distribution & logistic companies are based in Palm Beach County alone.

No alt text provided for this image
Lease Volume and Average Starting rent for Miami Dade, Broward, and Palm Beach Counties

Plans for expansion

The small-bay industrial market in South Florida has plenty of legacy owners, with many properties operating below market rates. ICS plans to expand its portfolio but remains conservative with the current market conditions, as it is hard to justify a purchase with increased capital costs. As with many industrial markets, sellers are still stuck on yesterday's prices. The firm primarily focuses on multi-tenant industrial flex, with deal sizes between $ 5 million and $ 20 million. But as the industrial market enters a new era in South Florida, they are not afraid to go after retail. Zorovich is open to considering JV partnerships to expand ICS into more significant deals as he remains bullish on the Florida market.

Expansion out of South Florida is also an option. Markets like Port St. Lucie have witnessed tremendous growth over the past few years. Land constraints to the South have driven the advancement north. Amazon, FedEx, and Cheney Brothers have recently established themselves in this market as they have all opened or planned distribution centers here. Port St. Lucie offers one-third of the construction cost compared to Dade county and is within a three-hour drive of 70% of Florida cities.

Running out of room

Although there is one major problem with South Florida industrial... only a handful of suitable development parcels remain in Miami-Dade and Broward County. As of October 2021, there are 1,300 acres remaining for industrial development in Miami-Dade County. The Florida Everglades restrict expansion to the west and the Atlantic Ocean to the east. Although it is a development barrier, the Atlantic does provide industrial investment demand. The two major ports, Port Everglades and Port of Miami have experienced significant growth in traffic due to the completion of the Panama Canal's expansion in 2016. Port Everglades is also undergoing an expansion to accommodate larger ships which will help support the growth in consumer demand from the increasing population.

Re:Cap Key Takeaway

South Florida’s demand for industrial is fueled by multiple factors that will have significant long-term economic impacts. In addition, landlords have substantially more leverage than tenants since the amount of developable land and new construction in South Florida is so scarce.

Receive articles like this directly to your inbox.

Sign up for industry news, market trends, and platform updates.

Recent articles

Omaha Retail - Market Minute

May 10, 2023

Omaha is most notably known for hosting Berkshire Hathaway's headquarters, but to one's surprise, in CNBC's Top Business States Ranking, Nebraska was #7. The low cost of business and centralized location in the midwest has attracted many new companies and commercial development. As a result, the metro continues to see job growth, with unemployment down 2.7% year over year.

Boston's Bustling Multifamily Market

May 10, 2023

Greater Boston is home to over 118 colleges and 346,000 students, making it the city with the fourth-highest concentration of colleges in the United States. Universities, healthcare, and finance drive the metro's economy, but additional housing is desperately needed. The metro is undersupplied by 77,000 units, leading investors to redevelop office space, factory buildings, and more into residential space.

Multifamily Markets to Watch

May 10, 2023

The multifamily market's current rhetoric is a swirling cycle of good, bad, and ugly. There still is a housing shortage, rents are declining, capital has dried up, and the Federal Reserve is still raising rates. As an investor, how do you navigate these circumstances? The team at Rockval spoke with Bobby Larsen, Principal of Vanamor Investments, to get his insight on the current market conditions. Larsen has over 16 years of multifamily experience, initially starting his career at PIMCO and eventually moving to MG Properties Group. As the Director of Acquisitions at MG Properties, Larsen helped grow their portfolio from $500 to $4.5 billion AUM during his seven-year tenure.