A wave of “blend-and-extend” leases, along with thriving trade with Latin America, has made Miami’s industrial market, especially in the Class A range, among the top in the country.
While the residential and office markets continue to struggle, industrial is leading the way, especially in Miami-Dade County.
With a decline in vacancy to 7.9 percent at the end of the fourth quarter of 2010, the county made the list of the top five industrial markets in the U.S. with the lowest vacancy rate according to a recent report from Cushman & Wakefield.
“There are really two things that are noteworthy,” said Wayne Romaski, a senior director at Cushman & Wakefield in Miami. “One is that it’s not overbuilt — we’ve had good absorption this past year in the Class A markets, and two, our business relationship with Latin America is going to help us come out of this economic crisis a little faster than other areas.”
Miami, which saw a total of 5.1 million square feet leased last year, is part of an overall strong regional market, he said.
Broward County’s industrial vacancy rate fell to 8.9 percent at the end of the year, with an overall 18.9 percent increase in leasing activity or a total of 3.7 million square feet for the year.
Part of the reason for the trend is the willingness of landlords to do so-called “blend-and-extend” deals not just in Miami, but across the tri-county area, Romaski said. These occur where, for example, a tenant has two years remaining on a lease at an above-market rent, and the landlord writes down the rental rate to a level for the remaining term of the lease, and then extends the tenant for another three to five years after the expiration date.
“It’s a practice that we’ve seen more of in the last 18 months than in my 25 years in the business,” Romaski said.
It’s the Class A properties that are driving the market, especially in bulk distribution buildings, said Ryan Nee, an associate at Marcus & Millichap in Fort Lauderdale.
“The areas where tenant bases are getting hit the hardest are the spaces over 2,000 square feet and those below 10,000 square feet that are just warehouse and don’t have any dock-type loading,” he said.
At the end of the fourth quarter, direct net rents were around $5.37 per square foot in Miami-Dade, down from $6.85 at the end of the fourth quarter in 2009. Broward County’s rents saw a less drastic drop, from $7.39 per square foot to $7.10 at the end of last year, according to the Cushman report.
“Rental rates going down is a function of two things,” Nee said. “One, when there are vacancies in the market, tenants have to figure out where to lease, so they’re pitting landlords against each other. The other thing is, businesses are hurting, so tenants can’t afford a certain amount of money — they can only pay what they can pay. Landlords take it because it’s better than having a vacancy in a year.”