The industrial sector, a bright spot in South Florida’s real estate market, is seeing shifting strategies, experts say.
Some developers, like Duke Realty, are launching new projects, while slowing down in other parts of the country. In mid-March, as the pandemic was unfolding, the Indianapolis-based industrial real estate investment trust pumped the brakes and revised its development pipeline. It refocused to build-to-suit deals and projects in coastal markets with less risk, said Stephanie Rodriguez, Duke Realty’s vice-president of leasing and development.
But deals haven’t stopped in South Florida. The firm recently inked a lease with an undisclosed tenant that will take up 72 percent of the company’s proposed 718,000-square-foot business park in Medley called Miami 27.
“At that point, it’s full steam ahead,” Rodriguez said during a Zoom panel discussion with two other industrial real estate executives on Thursday. “For us locally, we went into the pandemic very highly occupied. Our portfolio in South Florida was at 99 percent.”
Rodriguez was joined by Ross Giglio, vice president of acquisitions and asset management of San Francisco-based Terreno Realty, and Jason Tenenbaum, leasing manager for San Francisco-based Prologis, on the panel held by the Commercial Industrial Association of South Florida.
For Rodriguez and the other panelists, South Florida’s industrial real estate sector is on a stable path, but major industrial players are still bracing for the possibility of falling rents and rising vacancies.
Last week, Newmark Knight Frank released a report showing the local industrial market had its strongest quarter in three years with a 51 percent increase in net absorption.
“Remarkably, little has changed,” Giglio said. “Occupancy and development activity have remained strong. While waiting for the other shoe to drop, things have held together.”
Still, some tenants who only expected a short-term hit from the pandemic need to come up with long-term plans to avoid eviction, Giglio noted. He said one of Terrano’s tenants pivoted from handling marketing for cruise lines to manufacturing boat parts and accessories. “As long as it brings money through their doors, we are happy to see it,” Giglio said.
Some of Duke Realty’s tenants have also revamped their business models, Rodriguez said. “I have one tenant that sold food products to the hospitality industry that is now selling meat to the public at wholesale prices to keep the business moving along,” she said. “They are just trying to get creative [in order] to generate revenue and keep the doors open.”
Yet, a lot of uncertainty remains in the industrial space, Prologis’ Tenenbaum said. “We are still in this state of Covid confusion,” he said.
“For every [tenant] that can’t pay rent, we are getting a tenant demanding more space,” he added. “There is still this ball of confusion as to what the future looks like.”