Caution over the canal

Apr.April 04, 2014 10:18 PM
Port of Miami


Miami’s industrial real estate market will soon be hit with colossal new mega-ships loaded with cargo arriving at PortMiami, coming through an expanded Panama Canal. The multi-billion dollar canal expansion project should allow vessels to carry three-to-four times more cargo to the East Coast, which, if all those ships were loaded up, could overwhelm Miami, due to an acute shortage of space to handle it.

“The industrial space down here is full right now,” said Edward Easton, chairman and CEO of the Easton Group, a Doral-based firm that owns 7 million square feet of industrial real estate in South Florida.

But just because there is the ability to ship more cargo, doesn’t mean there will be the demand for it at first. Easton estimated the expanded canal will increase shipping by less than 5 percent. “So the real impact of the canal will be on pricing,” Easton said.

The industrial vacancy rate is about 4.8 percent throughout Miami-Dade County, according to CBRE data.

The county is spending about $2 billion, under the oversight of PortMiami director Bill Johnson, to dredge the port (currently 42 feet deep) to a depth of 50 feet to accommodate the mega-ships, build a tunnel to improve access to the seaport and install new cranes to prepare for the coming influx. But so far, the private sector is making comparatively little investment in new industrial space.

“The industrial sector is encountering some limitations, because building a new building today costs about $140 per square foot and rents are only about $6.50 per square foot,” Easton said. “There’s no economics to building new, and there won’t be until rents go up.”

When that rent increase might happen is uncertain, leaving Miami’s industrial market, which totals about 210 million square feet of space, in flux. The Panama Canal expansion, already a year behind schedule, is stalled, as Panama’s Canal Authority disputes more than $1.6 billion in cost overruns with the Spanish-led consortium handling the engineering. Known as the Grupo Unidos Por El Canal, the consortium includes Spanish builder Sacyr, Italy’s Salini Impregilo, Jan De Nul of Belgium and Panama’s Constructura Urbana.

Negotiations are ongoing, but it is uncertain how long the impasse will drag on, with some fearing it could take years to restart work.


Meanwhile, competition from ports in Fort Lauderdale, Jacksonville, Tampa and Charleston, S.C., means that even if rents rise to a level that would justify pricey new industrial developments, Miami — despite its position as the first port of call from Panama — could be undercut by cheaper facilities.

In 2013, more than 1.6 million square feet of new industrial space came online in Miami. There is an additional 1.2 million square feet of industrial real estate under construction in Miami-Dade County, with 3.6 million square feet more in the pipeline.

In a good year, however, the market typically absorbs about 3 million square feet of both new and existing space, according to CBRE data. That means little beyond what the market would ordinarily absorb is being built, despite anticipation of extra growth related to the canal expansion.

“School is still out as to how much additional square footage of industrial real estate will be needed once the canal expansion is completed,” said CBRE’s Michael Silver, former president of the Commercial Industrial Association of South Florida. “The question here is how much of the cargo is going to stay and service the residents of Miami, and how much of it is going to move elsewhere once it’s off the ship.”

Among the projects in the works are Fort Lauderdale-based Miller Construction’s Buildings 31, 32 and 34 at the Flagler Station business park in Miami-Dade County. Those buildings total about 171,000, 270,000 and 250,000 square feet, respectively.

Also under construction in Miami-Dade are Buildings 21 and 22 at Beacon Lakes, an industrial park west of the Miami International Airport. Prologis, a global developer of industrial real estate with $48 billion of managed assets, will have a combined 320,000 square feet there when work is complete.

Finally, Liberty Property Trust, an $8 billion real estate investment trust with 103 million square feet of office and industrial space, is developing 126 acres in Medley into approximately 1.8 million square feet of industrial space over the next few years. Work on a 147,000-square-foot facility on the property is underway.

“Because of the amount of uncertainty involved, the development of industrial space in Miami will occur gradually, as the demand presents itself,” Silver said.

Despite the opportunities to capitalize on an historic trade expansion, Miami’s industrial sector appears content to hold its cards tight and take a conservative approach.

“We need to be prudent about how the new industrial buildings are delivered to avoid a glut,” said Steven Medwin, managing director of JLL in South Florida. “But there are only going to be winners and bigger winners here.”

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