The industrial real estate sector of Palm Beach County continues to hum along amid strong economic growth in the area, experts told The Real Deal.
“It’s a very tight market, with the vacancy rate at just 4.2 percent in our preliminary estimate of the third quarter, down from 4.9 percent in the second quarter,” Robert Smith, senior vice president of CBRE in Boca Raton, told TRD. “Of that, there’s very little quality. Quality, decent product is almost non-existent.”
The industrial real estate boom has followed the path of the recent housing recovery north from Miami-Dade County, to Broward, to Palm Beach, both Smith and Douglas Mandel, senior vice president of investments for Marcus & Millichap in Fort Lauderdale, said.
“Palm Beach County is the only market with large tracts of land for single-family homes,” Smith said. “All of these planned developments are just starting. The projects need electrical supplies, air conditioning, flooring, plumbing supplies, building material, granite, etc. That creates a need for warehouse space for all kinds of product.”
At this stage of the last real estate cycle — 2004 — there was still industrial product available in the market, Smith said. “I’m concerned that there is so little product and so much demand, that rental rates won’t stabilize until there are new buildings.”
CBRE’s preliminary third-quarter estimate has triple-net rent at $8.49 per square foot for Palm Beach County, up 1.6 percent from $8.36 in the second quarter.
With interest rates so low, many companies have purchased their own buildings. “That has pushed the value of buildings to what it would cost to build,” Smith said. “A ton of buildings have been sold, and there are none left.”
Investors are particularly attracted to industrial real estate because it has low operating costs, compared to the office market, which has substantial costs related to tenant turnover, Mandel told TRD.
Demand for industrial real estate has spread across all product types and geographic locations, they said. “Jupiter is strong, because there’s limited supply,” Mandel said. “It’s very challenging to develop new product there.”
Every submarket is performing well, Smith said, including Riviera Beach, which has historically lagged behind. “But now that has been absorbed,” he said.
New product, such as Duke Realty’s Turnpike Crossings in West Palm Beach, is being developed. Turnpike Crossings will have 225,000 square feet of its 800,000 square foot total delivered early next year.
Liberty Airport Center in West Palm Beach, has site plan approval for seven warehouse/distribution buildings totaling over 640,000 square feet. And McCraney Property Co. plans to develop 388,000 square feet of warehouse/distribution space east of the Florida Turnpike on Belvedere Road.
Smith and Mandel agree that the outlook remains bright for industrial real estate in Palm Beach County. “Unless there’s a shock to the system, changing the economy, I see strong demand for several more quarters,” Mandel said.