While the performance of small- to mid-size warehouses is still a good gauge of the overall health of any industrial market, e-commerce tenants with large space requirements are transforming the way urban markets develop statewide.
These prospective tenants are hungry for distribution centers in highly populated areas, and they bring in their wake a host of third-party logistics and distribution firms. Over the past year or so, Amazon alone has appreciably pushed up demand and depleted supply of big-box spaces across Florida.
This trend has created a landlord’s market, with escalating rents and the ability for property owners to choose among several prospective tenants. In markets where affordable, suitably zoned land is available, this in turn is leading to a new cycle of build-to-suit and speculative construction.
JLL Research analyzed data from the third quarter to provide a snapshot of key trends transforming the Miami, Tampa Bay and Jacksonville industrial markets.
E-commerce users boost demand as rents soar
Rents continue to rise in Greater Miami’s industrial market in spite of the delivery so far this year of more than 3.1 million square feet of new warehouse and distribution space –– a figure significantly outpacing total new construction activity in each of the previous three years, according to JLL’s Q3 Industrial Insight report. Over the past seven years, average asking rents have climbed 42 percent to $7.20 per square foot.
One reason for the surge in demand is the arrival of e-commerce tenants with hefty space requirements. Amazon has been responsible for nearly 16 percent of Miami-Dade’s leasing activity so far this year, helping to position the county as one of the nation’s top distribution hubs. Currently, 37 percent of companies known to be scouting the area are looking for spaces of 250,000 square feet or more.
Although net absorption in the third quarter was relatively low, developers remain bullish that it will pick up in the near future. Total vacancy is still only 4.5 percent, and market fundamentals remain strong. Of the 3.5 million square feet now under construction, 60 percent represents build-to-suit projects due for delivery by mid-2018, which are expected to boost absorption numbers.
Rental rates reach new heights as demand outstrips supply
Absorption continued to outpace deliveries through the first three quarters of the year in the Tampa market, leaving only 12 blocks greater than 100,000 square feet in Hillsborough and Polk counties, states JLL’s Q3 Industrial Insight report. Average asking rates are on the rise, and landlords are holding out for larger tenants.
Job growth –– fueled by strong market dynamics, a large employment pool and easy access to two major interstate highways –– continues to put pressure on the market, driving demand higher, particularly for first- or second-generation space. More than 1.9 million square feet of new product is underway in these submarkets, the majority of it speculative.
In the Pinellas and Westshore/Airport submarkets, rents are rising aggressively due to lack of suitable land for new construction. Rental rates for warehouse and distribution space are at a 10-year high.
Dwindling supply and increasing demand usher new wave of industrial construction
Two large leases –– one for an Amazon Fulfillment Center and another for a logistics company –– combined to push occupancy in the Jacksonville industrial market to new heights, according to JLL’s Q3 Industrial Insight report. Over the past five years, total vacancy in the market has dropped from 10.5 percent to 5.1 percent. The recently delivered 400,000-square-foot Cecil Commerce Center in Westside is now virtually the only space option for a large user.
Jacksonville, considered the largest city in the country by landmass, has 1.4 million square feet of new warehouse and distribution space now under construction to meet unprecedented tenant demand in the market, with more announcements for both build-to-suit and speculative projects expected. The availability of large tracts of undeveloped land suggests that the next wave of larger industrial development will be on the north and west sides of Jacksonville, away from the population center.
With strong market fundamentals and proximity to densely populated areas, all three industrial markets – Miami, Tampa and Jacksonville – are benefiting from the rise of e-commerce and its need for large blocks of commercial real estate –– a trend that is likely to boost job growth and improve local economies over the years ahead.
This is part I of a two-part blog series. Part II will feature the Fort Lauderdale, West Palm Beach and Orlando industrial markets.