Condos may get all the publicity, but industrial space in Miami is hot again, with developers competing for land and tenants.
More than 4 million square feet of space is in the development pipeline. And land prices are reaching record level, attracting as much as $1 million per acre.
The investment industry now considers Miami a tier 1 city, which is attracting more institutional investors, Steve Medwin, managing director for Jones Lang LaSalle South Florida told WPC News.
"REITs, the life insurance companies, private equity firms, all have raised tremendous amount of capital for real estate... they want to have a location here," Mr. Medwin said.
Several catalysts are driving the market, including the Panama Canal expansion, which will bring Panamax-class container ships to Miami's port in 2015, as well as the growth of the economy in Latin America.
Developers delivered almost 300,000 square feet of warehouse and distribution space in Miami during the third quarter. An additional 733,737 square feet is currently under construction, according to CBRE. Another 3.9 million square feet of space is in the development pipeline.
The largest delivery during the third quarter was Building 1 in South Florida Logistics Center, adding 171,545 square feet to the area known as Airport/Doral. The South Florida Logistics Center will eventually add 1.6 million square feet of industrial space across 200 acres next to Miami International Airport.
The popularity for land in Doral has pushed up prices for competing investors.
"Prices went from a $1 million an acre [before the recession], down to about $400,000 an acre in the bottom of 2009 in Doral, and are now back to about $750,000 an acre -- if you can find it," Mr. Medwin said.
The year-to-date net absorption of 794,356 square feet at the end of the third quarter already surpassed the total absorption for 2012. Starboard Cruise Services signed the largest lease -- 220,000 square feet at the future Flagler Station Building 34, according to CBRE.
The vacancy rate for Miami's industrial market is down to 4.9 percent, dropping 40 basis points from the previous quarter, and down 120 points from last year. Average asking rates were up to $7.81 per square foot during the third quarter, which is $0.43 per square foot higher than last year, CBRE reports.
The recent development has led to a glut of product in certain areas, which is helping to keep down prices, Mr. Medwin says.
"We are seeing is a lot of speculative construction by these big institutions who were able to buy land in the last couple of years and they are all delivering around the same time," Mr. Medwin said. "There are a number of choices so rental rates are staying low there, they're not shooting through the roof."
The demand for Miami's industrial product should continue to increase, analysts say.
"Several sizable investments sales, both institutional and private, are expected to close during Q4 2013, resulting in a boost in sales volume," CBRE said in the report.
Although land is predominately scarce, the city still offers potential for developers and investors, analysts say.
"It's a supply constrained market, so there's not a lot of land around," Mr. Medwin said. "But there's enough to build another 10 million to 20 million square feet, which is 5 to 10 percent of the base we already have in Miami, over the next 3 to 5 or 10 years."