Banks are giving a boost to South Florida’s industrial sector.
Burned by their pre-crash dependence on residential mortgages, regional and statewide banks are now putting a greater portion of their financing dollars into commercial and industrial loans than banks nationwide, according to a report prepared for the Commercial Industrial Association of South Florida.
In fact, commercial and industrial loans from banks in the region have nearly doubled since before the crash, to 13 percent of assets at the end of 2013, up from just 7 percent at the end of 2006.
“This represents a major shift in lending patterns,” banking analyst Kenneth Thomas wrote in the report.
The association’s analysis of CoStar data shows 24 percent of South Florida’s commercial real estate loans of at least $1 million between August 2013 and July 2014 went to industrial property owners. Only the multi-family sector, with 28 percent, had more lending activity during that span.
The shift is visible in activity on the ground, according to Jorge Pena, president of the association and CEO of All Safe Insurance Group. Banks are more inclined to provide construction loans for industrial projects than just about any other sector in South Florida, he said.
One big reason banks are willing to lend is the industrial sector’s growth.
Vacancy rates at Miami-area industrial space fell to 6.6 percent through the second quarter, well off 2009’s 12.8 percent peak, according to JLL. And major infrastructure improvement projects that will likely draw more business are underway at Miami-Dade and Broward’s airports and seaports. The most notable are PortMiami’s $1 billion tunnel beneath Biscayne Bay, and the deep dredging project to enable larger cargo ships to enter the port after the Panama Canal expansion in 2016.
In addition, about 3 million square feet of new Class A industrial space is being built in the region.
Job growth is also helping. South Florida had a 2.9 percent year-over-year gain in jobs during the second quarter, fueled by a surge in residential construction. That led to an increased need for space from consumer goods distributors, retailers and building supply companies.
“Growth is clearly being driven by tourism, international trade and new construction,” said Nick Wigoda, JLL vice president. “Restaurants, retail and hotels all need to be supplied by warehouses.”
One of the most notable industrial leases of 2014 is business shipping servicer CEVA Logistics’ renewal of 365,000 square feet at a complex owned by Clarion Partners located west of Miami International Airport. It is believed to be the Airport West market’s largest lease in five years. Close behind that was online retail giant Amazon’s 336,000-square-foot warehouse deal at the Miami International Distribution Center, also in Airport West .
Asking rents in Miami-Dade County rose 43 cents per square foot to $8.27 in the second quarter from last year, according to CBRE. Broward County’s year-over-year asking rents rose 7.6 percent to $7.36 per square foot. Palm Beach County saw a 2.9 percent rise, also to $7.36 per square foot.
A frenzy of lending in the industrial sector could generate its own set of problems, Thomas warned.
“We may have too many banks chasing too few good [industrial loans], and the result may be what I call ‘subprime’ commercial loans,” Thomas wrote. “As was the case with the subprime residential loans, the problems will not show up until several years later.”