Recent industrial acquisitions highlight a growing role in South Florida for the commercial real estate arena.
Prudential Real Estate Investors and TIAA-CREF spent a combined $135 million on industrial properties in Broward County in just the past two weeks, as previously reported by The Real Deal. In another sign of a red-hot market, Industrial Property Trust recently bought a 41,000-square-foot distribution facility just outside of Miami for about $4.1 million. The property’s location in Medley allows the company to serve users of both PortMiami and Fort Lauderdale’s Port Everglades.
“This property marks our first acquisition in the South Florida industrial market,” Industrial Property Trust CEO Dwight Merriman said in a statement. The Denver-based real estate investment trust touted the region’s seaport access, improved infrastructure and strong demographics.
Industrial Property Trust also has a contract to buy the 71,000-square-foot Palm Beach Commerce Center for $7.2 million, according to Securities and Exchange Commission filings.
Miami’s industrial market had nearly $252 million in sales volume during the first quarter of 2014, according to CoStar Group. CoStar did not report first quarter 2013 sales volume but indicated the $252 million generated in the first three months of 2014 represents a year-over-year gain.
Last week, Gov. Rick Scott toured PortMiami’s dredging project to deepen the port’s channel to 50 feet. When finished in 2015, PortMiami will be able to handle the super-size container ships slated to start sailing through the expanded Panama Canal next year.
Scott predicted the deepening of the channel will create 30,000 new jobs and boost PortMiami’s annual economic impact to more than $34 billion, a 26 percent increase from $27 billion.
The project aims to let PortMiami take advantage of increased trade with Asian markets and support its already considerable activity with Latin America. The state is contributing $112 million to the project, with Miami-Dade County providing $108 million.
“PortMiami is big news now because of three factors,” Michael Silver, a CBRE broker and board member of the Commercial Industrial Association of South Florida, told TRD.
Silver cited the dredging project, which will allow the post-Panamax ships to carry triple or quadruple their previous container volume to the port; the $1 billion port tunnel, which will provide direct port access for cars and trucks and alleviate congestion when it opens in June; and the reactivation of the Florida East Coast Railway for direct shipping out of the port. Limited cargo service was launched on the railroad in October 2013, with full service expected to begin in 2015.
Hal Lewis, a partner with Miami-based law firm Pathman Lewis, told TRD he is seeing “a very rapid increase in the comeback of the industrial market” in the Miami area.
The Panama Canal expansion will most likely have a positive impact on the market, Lewis said. More port traffic should increase the demand for industrial buildings.
Available land for industrial construction is scarce, however, according to Silver.
“A residential boom is taking place now,” he said. “All of the unsold condos from the housing bust have been absorbed and a huge number of new construction is being planned.” Residential developers, he said, are “buying up the land and driving up the prices to sky-high levels. Warehouses and the industrial market just can’t compete and some deals are getting almost impossible to do.”
Not all South Florida real estate observers are convinced of the canal’s immediate impact on the industrial sector.
“I don’t see the Panama Canal expansion pushing the market at this time,” JLL vice president Nick Wigoda told TRD. “Strong local fundamentals are making the market active now. The canal may only add to it in the future.”
Wigoda cited increased consumer spending, a thriving hospitality market and existing home sales and housing starts as drivers of the industrial market’s rebounding strength.
“The industrial commercial real estate market is clearly coming back — clients are in expansion mode and looking to sign or renew leases and market fundamentals support that,” Wigoda said. For institutional investors, South Florida is “a market with a high barrier to entry, with a limited supply and no shortage of investors willing to buy in. It’s a very expensive market to be in.”
The region’s commercial real estate is sought after by institutional investors because it is one of the top markets for capital investment, a gateway to Latin American trade and is considered a safe and steady investment, according to State Street Realty president George Pino.
“There’s only a limited amount of land in the area,” Pino told TRD. “And it’s all surrounded by water. So investment will only increase and the market will remain strong.”