Ongoing economic growth in a variety of industries is pushing record-breaking demand for well-located industrial facilities in key markets across Florida. With multiple tenants lined up for nearly every available space, developers are aggressively competing for affordable land to build new product –– and landlords are enjoying rapid rent hikes.
JLL Research analyzed data from third quarter 2017 to produce an overview of key trends driving the Orlando, Fort Lauderdale and West Palm Beach industrial markets. Here are the key findings:
Orlando: New completions, strong leasing activity mark peak of development cycle
Following the delivery of several large developments in 2016 and early 2017, the Greater Orlando industrial market has experienced an increase in larger lease transactions. This, in addition to several availabilities expected to come to market in the near future, should generate more leasing activity in the range of 100,000-plus square feet well into 2018. Decisions by many tenants to delay anticipated leasing decisions until the beginning of 2018 should contribute to continued brisk leasing activity across all property types.
Although several smaller projects have broken ground along the heavily populated 429-Tollcorridor in North Orange County and developers are actively seeking sites throughout the region, new product deliveries next year are not expected to match the 1.9 percent inventory growth achieved in 2017. As the development cycle passes peak, some speculative business parks are rapidly gaining in occupancy.
Fort Lauderdale: Economic expansion boosts occupancies, rental rates
Greater Fort Lauderdale’s economic expansion is lifting demand for warehouse space to new heights, resulting in soaring occupancy rates not seen in over a decade. By the close of the third quarter, occupancy stood at 96.1 percent across Broward County, with leasing activity particularly strong in the Central and Northeast Broward submarkets. Demand is coming from a broad range of commercial sectors, including pharmaceuticals, logistics and food & beverage. Intense competition among prospective tenants has pushed rents to an average $8.60 per square foot –– an increase of 37.0 percent over the past five years –– and asking rates in the sought-after Central and Southeast Broward submarkets are approaching double digits.
With demand outpacing supply for the past eight years, developers remain bullish about Broward. JLL’s Q3 Industrial Insight reported that more than 700,000 square feet of new space was expected to be added by the end of 2017, with more to follow throughout 2018. Sustained demand and the prospect of new space options bode well for continued growth.
West Palm Beach: Leasing activity dominated by smaller deals due to dwindling supply
Insufficient supply continues to drive the industrial market in West Palm Beach and surrounding areas. The delivery of nearly 2.4 million square feet of industrial space over the past four years was eclipsed by total market absorption in the same period of more than twice that amount, primarily in the West Palm Beach and Boynton Beach submarkets. This ongoing imbalance between supply and demand makes for a strong landlord’s market. Vacancies dipped below 2.0 percent in some submarkets, and average rental rates rose to $8.96 per square foot countywide, an increase of 5.5 percent year to year. The average asking rate in the Boca Raton submarket ended the third quarter at $12.94. Given the spiraling cost of construction in the Palm Beach market, a continued rise in rental rates seems likely.
Due to the scarcity of large options, deals over 900,000 square feet closed in the third quarter fell short of previous quarters. Instead, more than half of third-quarter transactions were in the 10,000- to 25,000-square-foot range. Meanwhile, demand for single-story, high-ceiling facilities in desirable locations is on the rise. As of the end of the third quarter, 166,392 square feet under development in West Palm Beach accounted for the only new industrial space on the horizon.
All three markets –– Orlando, Fort Lauderdale and West Palm Beach –– are undergoing dynamic growth. As Orlando emerges from its latest development cycle, tenants have more options, and recently completed projects are beginning to fill up. Look for attractive investment opportunities there over the months ahead. Meanwhile, rampant demand has driven up rates in Fort Lauderdale and West Palm Beach – now the challenge is to produce sufficient supply to meet the markets’ need for more space.