markets, as a result of not only strong demand during 2014, but also
an array of Class A property trades at healthy price points, nearly
all of which increased asking rents. As the local economy becomes
more diversified and emerging industries begin to take hold in the
area, demand for office space should rise.
The outlook for South Florida’s real estate market is certainly
positive; however, challenges remain as well. Although the Region
is experiencing strong employment growth, the majority of new
jobs have been in low wage sectors and are not impacting the
economy on a wide scale as would other sectors such as high tech
and financial services. In addition, the Region, while becoming
more diversified, is still heavily reliant on a healthy global economy.
This leaves South Florida in a riskier position, where if one of
the many variables impacting the global economy experiences a
decline, ramifications will be amplified for South Florida, particularly
Miami. The availability of land is also presenting challenges for the
Region. Land values continue to increase, leaving developers to
consider multifamily housing over industrial or office development,
as residential construction is both a safer investment and currently
a more profitable one. When office rents reach levels to justify new
construction, available land for office product will be more limited;
furthermore, industrial sites are being converted to residential
land, exacerbating the land constraints. Regardless, South Florida
will remain attractive for real estate professionals over the short
term, and with transformative developments and other external
forces reshaping the Region, the long term outlook for Miami, Fort
Lauderdale, and West Palm Beach is brilliant.
Despite the grand scope of development taking place in the market,
office construction is relatively sparse, which will only strengthen the
position of landlords in the near future for all three office markets.
Including the Duke Realty project in Southwest Broward that broke
ground at the start of 2015, there is only 500,000 square feet of
office under construction in South Florida, nearly half of which is
occurring in the Suburbs. For office development to be feasible in
Downtown, rental rates will need to surpass previous peak levels
seen before the recession. Until that time, the bulk of new product
will likely be delivered in the western Suburban markets.
The lack of new construction is not an issue for the industrial real
estate market. Currently, there is 1.9 million square feet under
construction in South Florida with upwards of 7.0 million more
in the pipeline, and it is expected that demand will be sufficient
to absorb this new product. The industrial market is benefiting
from all the factors mentioned above, and with the expansion of
the Panama Canal and the area’s ports making preparations to
accommodate the larger vessels, South Florida’s industrial markets
should continue to strengthen in the future. The robust current and
projected demand presents opportunity for investors at the moment.
Although rent growth has been steadily increasing, rates are still
below peak levels, yet demand has been keeping pace with new
supply. We expect rates to surpass previous peaks during the next
18 to 24 months. Also, as land becomes scarce in the market,
development costs will continue increasing, making newer Class
A product even more attractive to real estate investors. Online
retailers are another factor that should benefit the local industrial
real estate markets. With same and next day delivery, the need for
distribution centers within close proximity to a dense population
base is even more significant. Amazon has already leased a large
distribution center in Miami, and we expect other e-commerce firms
eyeing South Florida for large facilities.
Sources:
ATP; Broward County Department of Aviation; Bureau of Labor Statistics; Chief Executive Magazine; Condo Vultures;
Daily Business Review; Enterprise Florida; Entrepreneur.com; ESRI; Federal Reserve; Florida Department of
Economic Opportunity; Florida Department of Education; Florida Department of Revenue; Florida Office of Economic
and Demographic Research; Florida Ports Council; Forbes Magazine; Fort Lauderdale Conventi