South Florida’s slumping trade with Latin America has cut tenant demand for warehouses and other industrial properties in the region.
The United States’ economic slowdown has spread to Latin America and other global regions, pressuring freight forwarders, distributors and other South Florida industrial companies.
“As we wind down here, it only makes sense that economies in Latin America are going to have challenges,” said Jonathan Kingsley, managing director and executive vice president at real estate brokerage firm Grubb & Ellis of Florida.
Grubb & Ellis reported that industrial vacancy rates in last year’s fourth quarter were 8.2 percent in Miami-Dade County, 8.5 percent in Broward County and 8.8 percent, up from a range of 6 percent to 6.8 percent during the fourth quarter of 2007, in the tri-county South Florida area.
“Many of the freight forwarders are asking for a reduction in their square footage because they don’t need the additional space for large shiploads or planeloads of products,” Kingsley said. The market may not show a “significant recovery” until the middle of 2010, he said.
Many owner-occupants of South Florida industrial property are trying to sublet surplus space. Consumer electronics distributor AAAA World Import-Export, for example, recently acquired and occupied a building just west of Miami International Airport spanning 180,000 square feet, including ample showroom space the company doesn’t need. “We are looking to get a retailer in there,” said Kiran Patel, co-owner of AAAA World.
International freight volume at Miami International Airport fell by 4.1 percent last year from the 2007 level. At the Port of Miami, for the 12 months ended Sept. 30, import-export volume fell 6.4 percent in from the prior year. Air freight data indicated an especially sharp fourth-quarter decline in trade. Import-export tonnage at the Miami airport fell by 16.6 percent in December, 19.6 percent in November and 9 percent in October, compared with the same months last year.
The sprawling industrial area west of Miami International Airport, known as Airport West, “is still one of the strongest markets in the country,” said Ernesto Casal, president of Miami-based real estate brokerage Capital Commercial Group. But “you’re seeing a lot of concessions” by landlords to industrial tenants, including “major reductions in lease rates” as leases are renewed.
Real estate brokerage firm Cushman & Wakefield recently reported that “Miami’s economy is in the midst of a global market correction,” flattened not only by recession in the U.S. but also “by a broader based slowdown in other global economies.”
“I think 2009 is going to be a tough year” in South Florida’s industrial real estate market, said Wayne Ramoski, senior director at the Miami office of Cushman & Wakefield. “Some tenants are asking landlords for rent relief, and some are downsizing, or right sizing, and some are going out of business.”
Ramoski also cited diminished investor interest in warehouses and other industrial properties: “Very few land sales have taken place,” and “the industrial warehouse condominium market has slowed greatly.”
But the weakness in South Florida’s industrial property market still pales by comparison with the collapse of the region’s housing market. “The industrial market wasn’t overbuilt going into this situation,” Ramoski said.
Industrial lease rates in South Florida are among the highest in the nation because the area is centrally located in the Americas and because its land for future industrial development is geographically limited. “Our market is finite,” he said. “We’re pretty much built out.”