South Florida’s industrial squeeze has brokers sounding alarms
As industrial market soars, supply of development sites dwindles
After receiving unsolicited offers to buy its 8.6-acre industrial site in Medley last year, KDD Properties decided to list it and see how many institutional investors would line up with competitive bids.
“There were no less than 25 offers from various public and private pension funds and institutional investors,” Sky Groden of JLL, which marketed the property, told The Real Deal. “The deal ended up transacting at 25 percent higher than the unsolicited offers.”
Prologis, the behemoth industrial developer that dropped $43 million to acquire 29 acres of industrial properties in areas close to Miami International Airport last year, placed the winning bid. In December, the firm closed on the Medley property, which consists of a fully leased, 43,700-square-foot building and 5.5 acres of trailer truck parking.
More and more, industrial developers and institutional investors are looking at truck stops and construction equipment yards, like the Medley site, that offer vacant land that can be developed, Groden said.
“Truck terminal and equipment lot facilities have become a significant investment asset type,” Groden said. “Investors look at these properties as underutilized land plays.”
With a limited number of big industrial properties for sale across South Florida, even major players are turning to smaller buildings on large parcels. There’s a rush to wheel and deal for any existing warehouse properties as the sector continues to outperform all others, commercial real estate experts say.
A diminishing supply
In the coming year, a dwindling inventory of developable land could grind down South Florida’s red-hot industrial market as demand quickly absorbs any new space that comes online.
“Institutional [investors] see an end in sight in terms of how much land is available,” said Fairchild Partners‘ Sebastian Juncadella. “We’re really running out of it.”
According to a 2022 outlook presentation Juncadella helped create for the Commercial Industrial Association of South Florida, the region has a less than eight-year supply of land available for future industrial development.
Miami-Dade County has 1,300 acres left for potential industrial development, and Broward County has 400, Juncadella said. If all of that land were built out, it would increase Miami-Dade’s supply by just 9 percent, and Broward’s by 5 percent. Palm Beach County has 1,400 acres available, and would experience a 39 percent increase to its existing inventory if the land were fully built out, he said.
At the same time, tenant demand is outpacing deliveries. In Miami-Dade, the industrial market absorbed about 4.6 million square feet in the third quarter, with only 2.5 million square feet of new construction completed in the same period, according to a JLL report.
In a separate third-quarter report, Avison Young found that large blocks of 100,000 square feet or more “have become increasingly scarce.” In addition, the report said, a tightening supply is among the factors that have led industrial asset pricing to increase 22 percent since March 2020, with properties selling at an average of $149 a square foot.
As a result, smaller sites are drawing more competition from institutional investors and reaching premium sales prices, said Avison Young’s David Duckworth.
He pointed to a recent deal Avison Young brokered for a fully leased industrial building at the Sawgrass International Corporate Park in Sunrise. “It was an extremely, highly contested transaction,” Duckworth said. “We probably had 12 to 15 aggressive bidders. The buyer paid more than anyone else was willing to pay.”
Los Angeles-based Safco Capital Corporation paid $13.5 million for the 75,026-square-foot building, or roughly $180 a square foot. In Broward, industrial properties sold at an average of $171 a square foot, a roughly 24 percent jump since the end of 2019, Avison Young’s report states.
“A lot of projects that would have been $8 million to $10 million are now selling between $15 million and $20 million,” Duckworth said. “Those smaller deals get big quick when the square-foot price goes from $100 a foot to nearly $200 a foot.”
Duckworth told TRD that because of the shortage of land in Broward, developers are scouring areas they once avoided.
“You are seeing developers coming back east to the Dixie Highway corridor near Atlantic Boulevard [in Pompano Beach],” Duckworth said. “This is an area with a low population but historically had high crime. Developers used to shy away. Now it is in high demand because there is nowhere else to go.”
While Palm Beach County has more available land, developers aren’t sold on the location, Duckworth said. “There are a lot of opportunities in Palm Beach [County],” he said. “But it hasn’t been as robust because it is so far north.”
Smaller sites at premium prices
In Miami-Dade, sites like KDD’s, with small buildings, are in high demand. In November, industrial real estate giant CenterPoint Properties nabbed a 3.7-acre property with a 17,000-square-foot industrial building in Medley for $8.6 million.
Sims Crane & Equipment, a crane rental and rigging provider, fully leases the property, but CenterPoint has room to build more warehouses, according to brokers with Axiom Capital Partners who negotiated the deal.
“It is very difficult to source … the $20 million-plus deals,” Axiom’s Jose Sasson said. “There is a lot of demand and not enough supply.”
Competing for redevelopment sites
The way the market is headed, industrial developers have to start assessing large properties primed for redevelopment, such as the former Calder Race Course in Miami Gardens, Fairchild Partners’ Juncadella said.
Jackson, Mississippi-based EastGroup Properties bought the 61-acre site for $26.5 million in 2016 and is redeveloping it into an 850,000-square-foot industrial complex called Gateway Commerce Park. EastGroup has completed the first phase, a 200,372-square-foot warehouse.
Juncadella said EastGroup recently listed Gateway Commerce Park and has received significant interest from “very large and powerful institutional groups.”
Another successful redevelopment, Miami Axis Park, a 415,460-square-foot industrial complex In Hialeah, was formerly a well-performing Winn-Dixie-anchored shopping center. Lincoln Property Company acquired the 20.6-acre site for $27.38 million in 2017.
“It was leased so fast, we didn’t need to have a broker event,” Juncadella said. “It proves the demand for industrial space and the risks some landlords are willing to take to deliver new buildings.”
Industrial developers are now sometimes competing with apartment builders for redevelopment properties, added Duckworth. “In the past, we were seeing multifamily developers outbidding everybody,” he said. “Now industrial developers are competitive with the multifamily groups.”
For instance, some industrial developers are looking at former mobile home parks, an asset class usually targeted by multifamily developers. In October, a joint venture between Chicago-based Industrial Outdoor Ventures and Stockbridge Real Estate paid $64 million for the 38.5-acre Twin Lakes Travel Park in Davie.
According to CBRE, which marketed Twin Lakes, the RV park can be redeveloped for a single- or multi-tenant industrial site ranging from 50,000 to 400,000 square feet.
Joshua Marbin, whose family owned Twin Lakes and sold it to the joint venture, said he was surprised by how much interest potential buyers had in the property.
“We were getting offers every couple of days,” he said, “from all over the country.”