Industrial Real Estate Market Q3 2023 // South Florida

Miami-Dade Industrial Market Summary

Miami’s industrial market’s Q3 2023 vacancy rate came in at 2.4% at the end of Q3 2023, far below the national average of 5.2%, which has ticked up over the past couple quarters. At the close of the quarter, the average gross lease rate was $19.92 per sq. ft., one of the highest in the country. The 12-month rent growth is 11.4% in the industrial market.

Net absorption over the trailing 12-month period was 2.4 million SF. The 12-month absorption figure is much closer to the 10-year average than the 8.1mm SF absorbed in 2021 and the 7.2mm SF absorbed in 2022.

Sales volume in the first half of the year was around $600 million. This figure is well below the sales volume of $730mm and $1 Billion in the first half of 2021 and 2022, respectively. For context, the historical average annual sales volume in $935 million. Average pricing in Miami is $254/SF. The average market cap rate is 5.6%. Sales pricing has stagnated due to the rapid rise in interest rates. Since March 2022, SOFR has risen by more than 500 basis points.

In the biggest sale of 2023, Prologis acquired 14 million square feet of industrial from Blackstone for $3.1 billion. Locally in Miami, the sale included the 185,000 SF Pan American North Business Park in Medley which traded for an allocated $50 million, or $274/SF. Also of note was the $43.3 million sale of the 115,000 SF cold storage facility located at 13801 NW 112 Ave. in Hialeah Gardens, sold to Boxer US Inc. from Blackstone, Inc. for $375 psf. There was a premium involved as compared to the rest of the market for the cold storage nature of the deal.

While there is still positive rent growth, it is moderating in Miami as compared to 2021 and 2022. Many in the industry believe we are returning to normal in the leasing market. Most of the Class-A development continues to take place
in NW Miami-Dade, with over 70% of newly leased spaced exceeding 200,000 SF being in that submarket. However, Miami remains a market comprised of smaller tenants compared to regional distribution hubs, with over 90% of leases signed being less than 50,000 SF. There is currently 9,521,052 SF of new construction in the works, with 3.5% of inventory currently under construction. Starts have slowed in 2023 with 2.4 million SF delivered so far this year. As starts slow, deliveries should peak and begin to pull back in 2024. Over 70% of the buildings under construction are larger than 100,000 SF. 35% of those are larger than 200,000 SF.

Broward Industrial Market Summary

The Broward industrial market’s Q3 2023 vacancy rate was up since last quarter to 4.1 with a $20.04 per sq. ft. average (gross) lease rate. Industrial rents in Ft. Lauderdale were rising at a 12.6% annual clip during the third quarter of 2023.

There is roughly 1.3 million SF of new construction in the works, which is a very low 1% of inventory currently under construction. Over 60% of the new rentable building area is concentrated in three buildings each at or over 200,000 SF located in Coral Springs, West Sunrise, and Southeast Broward submarkets.

Sales activity has come down after a historic boom in 2021-22. The sales volume in 2023 totals over $600 million, at -15% 12-month sales volume growth. Average pricing in Broward County is $245/SF. The average market cap rate is 6.2%. The largest transaction so far in 2023 was the Prologis acquisition of 73 industrial buildings from Blackstone, Inc. The portfolio consisted of assets across the country and traded for a total of $3.1 billion. The largest individual trade was the sale of The Pompano Distribution Center II at 4000 N Dixie Hwy, which traded for over $24 million, or over $188/SF.

Ft. Lauderdale boasts higher median incomes at 11% over Miami and fifth in the state due to a higher concentration of finance, professional and business services, and informational employment. Job gains have been led by other services, financial activities, and professional and business services, which have each grown by 2%. The Greater Fort Lauderdale Alliance states top employers in Fort Lauderdale include Nova Southeastern University, First Services Residential, HEICO, and American Express. Combined, they employ over 20,000 residents in South Florida.

Palm Beach Industrial Market Summary

The Palm Beach industrial real estate market’s Q3 2023 vacancy rate increased to 4.1% with a $16.67 per sq. ft. average (gross) lease rate. The market is moving similar to that of Broward County’s, with a strong annual rent growth that hit 9.1% in the third quarter of 2023.

New construction projects continue moving forward, with 2.8 million SF under construction as of Q3 of 2023. Close to 4.1% of inventory is currently under construction, showing some of the highest levels of activity in the country. The top Palm Beach submarkets for new construction are Palm Beach City Outlying, West of Turnpike, and Southern Blvd. Many of the new construction projects cater to large users – over 100,000 SF, and up to 1,000,000 SF.

Sales volume activity has so far totaled over $150 million in 2023, though it has begun to moderate. Sale prices in Palm Beach averaged $190/SF, yielding an average market cap rate of 6.2%. Strong investor demand in recent years has continued to drive pricing increases of over 3% annually in this market, which is above the U.S. average of 2%. With a slowing economy, and higher interest rates, transaction activity is expected to become more muted in 2023.

Palm Beach County has the third largest population in the state, after Miami-Dade and Broward Counties, and it is one of the wealthiest counties in both the state and country. Palm Beach hosts the fourth highest personal income in Florida, over 60% higher than the state average. The Palm Beach industrial market relies heavily on companies that provides services to the local population, with examples including everything from pool supplies to truck parts.

For the last quarter of 2023, the Palm Beach Industrial market is expected to continue normalizing. Growth in population, and demand for services, will help ground rent growth and sales prices. Employment gains in the Palm Beach metro areas are above 3.6% versus 1% for the U.S. since December of 2019. Employment is well over pre- pandemic levels in professional and business services sectors, as well as the financial activities sector. The largest employers in the area include Florida Crystals Corporation, Pratt & Whitney, Lockheed Martin and Sikorsky, IBM, Wells Fargo, and Bank of America.