Warehouses keep getting larger, catering to retailers like Walmart Inc., The Home Depot Inc. and the biggest industrial user of them all, Amazon.com Inc., that these days frequently take down 1 million square feet or more in a single lease transaction.
But while mammoth distribution hubs or sprawling manufacturing plants tend to be headline-grabbers, small warehouse users — including those needing 100,000 square feet or less — remain the bread and butter of many industrial markets nationally.
And in a warehouse market with constrained inventory, rapid rent escalation and fierce competition, it’s getting tough for small warehouse users to find, and afford, space.
“We are having to educate these tenants pretty quickly that the days of going out and touring 10 options, taking your time to shortlist those options, whittling them down to your favorite choice and negotiating back and forth are gone,” said Darren Ross, senior vice president at Colliers International Group Inc., specializing in industrial deals.
The market right now is causing companies that want to be in warehouse space of, in particular, 50,000 to 150,000 square feet to internally examine their business models and figure out whether they really need space in a specific submarket — or at all, Ross continued.
And beyond higher asking rents, industrial landlords today are putting in higher annual escalation clauses into leases — what used to be 2% or 3% is now closer to 3% to 5%, said Warren Snowdon, managing director and principal at Foundry Commercial LLC.
Foundry Commercial LLC, which has a development division, in 2019 considered whether to build multiple small buildings or one 565,000-square-foot warehouse at an industrial park in Charlotte, North Carolina. It ultimately decided to build the larger warehouse, seeing where the broader market was going, Snowdon said.
That’s a decision more developers are making today, especially as costs in every part of the process — from land entitlement, acquisition and development — have escalated.
Aaron Ahlburn, practice lead for logistics and industrial data at Avison Young, said current construction is heavily weighted toward bigger users, with the average size of a warehouse delivering today measuring 350,000 square feet among U.S. markets it tracks.
That’s reflective of a market where deal sizes have gotten progressively larger, from an average of a little more than 40,000 square feet in 2008 to, today, trending closer to 70,000 square feet, according to Avison Young.
Still, the biggest warehouse users — ones at or larger than 1 million square feet, in particular — are usually the tip of the pyramid in any given industrial market, Snowdon said. Tenants smaller than that comprise the rest of the pyramid, with the 50,000 to 150,000-square-foot tenant size making up the base of the pyramid, or the bulk of a market’s activity.
There’s a bit of a blind spot right now in the industrial sector for that size user, which the industry needs to be cognizant of, Snowdon continued. But lack of inventory and competition also means tenants right now facing sticker shock for sub-100,000-square-foot spaces are, by and large, going to have to accept the reality of higher costs.
Source: SFBJ
Multifamily Land Grab Expected To Slow As Interest Rates Rise
Rising interest and insurance rates are projected to slow down South Florida multifamily investments following a year of frenzied buying, according to a recent report from Franklin Street.
Dan Dratch, director of multifamily investment sales at Franklin Street’s Fort Lauderdale office, says real estate investors and developers could hesitate even as apartment rental rates continue to soar and vacancies shrink.
Adding to the uncertainty is rising property insurance rates in the wake of extreme weather events. This hurricane season is expected to be a particularly busy one.
South Florida saw significant rent growth in the first quarter of 2022, according to a Franklin Street report on the multifamily market, with year-over-year rents increasing 16% in Miami-Dade, 20% in Broward, and 23% in Palm Beach County.
At the same time, multifamily buildings were trading at premium rates.
In Miami-Dade County, each apartment unit averaged at $412,612 for new top-of-the-line Class A buildings, $327,394 for Class B buildings, and $207,592 for Class C.
In Broward County, units averaged $419,137 per unit for a Class A, $313,599 for a Class B, and $205,736 for Class C apartment buildings.
In Palm Beach County, apartments averaged at $413,253 per unit for a Class A, $320,410 for a Class B, and $206,812 for a Class C apartments buildings.
There weren’t many available apartment units on the market during the first quarter either.
Palm Beach County had a vacancy rate of just under 1%. Miami-Dade’s dropped to 3.3%. Broward’s vacancy rate increased slightly from the previous quarter to 4.1%, yet the county “also saw more deliveries than the other two counties in the market,” the report stated.
When it came to construction deliveries, Broward County led the tri-county area with 719 apartments added in the first quarter of 2022. In Miami-Dade, 497 new apartment units were added. In Palm Beach, 171 units were completed.
All three counties had fewer apartments finished in the first quarter of 2022 than in each of the quarters of the previous year, the report noted.
In spite of rising interest rates, labor shortages, and supply chain issues, construction of new apartment units are still “above historical averages,” the Franklin Street report noted. In the first quarter, development has commenced on 1,402 multifamily units in Broward, 869 in Miami-Dade, and 976 in Palm Beach County.
The confluence of apartment building transactions, low vacancies, and migration of well-paid remote workers propelled rents in South Florida during the pandemic. Multifamily investors were quick to seize the opportunity and bought up properties at a record pace.
Often, when longtime local renters were given rent increases, they would renew, unable to find cheaper options.
While rents are going up everywhere in the United States, the average rents in South Florida are higher than the national average.
According to the National Association of Realtors, the average effective rent — meaning the average rent a landlord receives after deducting expenses such as leasing commissions and tenant improvements — throughout the U.S. was $1,578 a month in the first quarter of 2022, a 12.2% increase over the year before.
Source: SFBJ
Expanding Your Real Estate Portfolio: Types Of Real Estate To Consider
For those investors searching for assets that can withstand the test of time, I believe real estate prevails. Whether through a market crash, health crisis (like a pandemic) or even an increase in interest rates, real estate can still work for you. While I admit it can be challenging to find new deals right now, if the price is right, who can stop you from investing?
Overall, downturns are inevitable, and as investors, we need to prepare for them. If you’re investing in equities, for example, you shouldn’t focus on one category alone. The same thing goes with real estate; you need to expand and diversify your real estate portfolio to lessen the impact of any downturn. It has been shown time and time again that being prepared helps beat future recessions.
Real Estate Portfolios
A real estate portfolio is simply a collection of investment properties that are cash flowing and appreciating. As income-producing properties, they are assets. They include short-term rentals, rent-to-own properties, commercial properties and home leases.
As investors, when we start accumulating properties and get into the process of building our portfolios, we want to expand those portfolios as much as we can. Therefore, a few properties will generally not be enough. It is essential for you to always be prepared whenever you enter a deal. To do this, you need to diversify your property portfolio as much as you can to mitigate the risk that comes with it. Once an investor, always an investor.
What To Consider In a Property Portfolio
Investing in properties is broad, and you can be as creative as you want to be. For example, who would have thought that Airbnb would cause a decline in hotel check-in rates? Innovation can rock any industry. You need to bulletproof what you have and adapt to changing times. On that note, the following are some options you may want to consider adding to your portfolio in 2022.
Single-Family Rental
Investors never veered their eye from single-family rentals (SFR) as these captivate renters who seek a spacious area—especially since working from home is the new normal. Millennials are eyeing these types of properties to have more breathing spaces, and more retirees are starting to prefer to settle in a single-family setup than in retirement facilities. The single-family rental has always been an investment, but it gained more attention over the years after the global financial crisis.
Moreover, regional migration plays a role in this booming single-family rental (SFR) scenario, and metros in the south like Miami and Phoenix exceed other regions in terms of rent growth. As shifting demographics and generational needs intensify single-family rental (SFR) demands, it’s only rational to add this to your portfolio.
Hotel To Apartment Conversions
Many hotels have become less lucrative with fewer check-ins, yet they still have to maintain high operational costs. Unfortunately, continuously cutting down hotel prices will not necessarily increase patrons.
It should be noted that the conversion of a hotel to an apartment comes with costly renovations. But even if investors have to shell out costs for renovations and hotel conversions may seem to be the lower-end option for the real estate market, investors/developers can still expect a higher return. The reason? Generally, renovation costs are lower than building new developments from the ground up. Plus, it’s easier to market units from hotel conversions.
Industrial Projects
Industrial projects, such as warehouses and logistics, are often not as popular when compared to multifamily rentals. Most investors like multifamily rentals since people will always need somewhere to live. Still, with the booming e-commerce industry and the recent disruption in office space, these types of properties can be a relevant addition to your portfolio.
Conclusion
In conclusion, innovation is not confined to the tech industry. Even real estate, an industry traditionally adverse to major changes, needs to adapt and develop.
There are great opportunities in the market today for you to expand your portfolio. A winning combination of a secure environment for investments and a robust and diversified economy can help tremendously but also prepare for downturns. Be sure to monitor your investments and portfolio closely (or hire someone you can trust to manage them for you) and take advantage of the tax benefits.
Source: Forbes
Greater Fort Lauderdale Alliance Marks Retention, Creation Of 757 Jobs
The Greater Fort Lauderdale Alliance helped companies retain or create 757 jobs in Broward County in a span of six months, leaders of the nonprofit economic development organization said at its mid-year luncheon on Friday.
More than 600 people attended the gathering at the Seminole Hard Rock Hotel & Casino in Hollywood. The event was presented by Florida Power & Light and the Broward Metropolitan Planning Organization.
Below are economic development highlights from the Alliance between Oct. 1, 2021 and April 30:
West Marine, a national chain of boating supplies and retail stores, will create 225 jobs at its new national headquarters at 1 E. Broward Blvd. in Fort Lauderdale. West Marine’s previous headquarters was in Santa Cruz, California. The company is also making an $800,000 capital investment to build out its 50,000-square-foot office space.
Icon International, a Greenwich, Connecticut-based corporate barter service, will add another 100 jobs as it increases its office footprint at 301 E. Las Olas Blvd. in Fort Lauderdale to 23,598 square feet this summer.
Project Play, the code name for an anonymous company that makes plush toys, action figures, collectibles, and musical instruments, has retained 75 jobs, created 150 jobs, and will make a $10 million capital investment in Plantation. Back in October 2021, Project Play was seeking up to $112,500 in incentives from Broward County in exchange for making more than $8 million in capital investments and creating 150 jobs by 2029 that pay an average salary of $80,874 a year. It’s leasing a facility that’s 100,000 square feet in size — the location of which can’t be revealed as yet.
Funtrition, a manufacturer of gummy vitamins affiliated with the Procaps Group (Nasdaq: PROC), that will be moving into a a 60,000-square-foot warehouse at 11600 Miramar Parkway in June. Funtrition will create 100 jobs, retain 42 jobs, and make a $9 million capital investment in Miramar.
CIG Financial, a Los Angeles-based company that specializes in providing loans for automobile, will be create 30 jobs in a 7,800-square-foot office at 1475 W. Cypress Creek Road in Fort Lauderdale.
Pherros Biosciences, a biotech company based in Deerfield Beach that produces novel drugs and treatments, will create 20 jobs at its 25,000-square-foot space at 740 S. Powerline Road.
Norse Atlantic Airways, a low-cost airline based in Arendal, Norway, will open its U.S. headquarters at Fort Lauderdale Executive Airport at 5520 N.W. 21st Terrace. Norse Atlantic Airways will create 15 jobs as it launches flights from Fort Lauderdale to Paris, London and Oslo later this year.
Swindell also touted other significant moves into Broward that either occurred outside of the six month period, or by companies that weren’t assisted by the Alliance. They include:
Stryker (NYSE: SYK), a multinational medical technologies company, which opened a facility at 3365 Enterprise Ave. in Weston in 2019 with the Alliance’s assistance. Stryker is in the process of adding 550 jobs, retained 351 jobs, and made a capital investment of $25 million.
TD Bank (NYSE: TD) and the Alan B. Levan NSU Broward Center of Innovation, will soon launch an innovation program that will create 200 new jobs in the Fort Lauderdale area.
JP Morgan Chase (NYSE: JPM), which leased 15,000 square feet inside The Main Las Olas, a newly constructed Class A building at 201 E. Las Olas Blvd. in Fort Lauderdale. JP Morgan Chase will hire 15 to 40 people, Swindell said.
Starr Insurance Co. leased 11,000 square feet at the Main Las Olas.
UK-based Vantage UAE opened a drone factory at 13798 N.W. 4th St. in Sunrise.
Former Gov. Jeb Bush also spoke at the event. He advocated a return to “decent politics” encouraged entrepreneurs to take more risks.
Other sponsors of the event include Delta Airlines, Fort Lauderdale Executive Airport, Memorial Healthcare System, Seminole Heritage Services, the City of Hollywood, JetBlue Airways, JM Family Enterprises, South Florida Business & Wealth, AutoNation, Becker, Broward Health, Capital Analytics Associates, Duke Realty, Fort Lauderdale/Hollywood International Airport, Hotwire Communications, Starmark, Verizon, and the South Florida Business Journal.
A partnership between private companies and Broward local governments, the Greater Fort Lauderdale Alliance advocates for companies to move to Broward County, The organization also advocates for incentives on behalf of private enterprises that hire and make a significant capital contribution. Additionally, the Alliance helps with permitting and connecting outside companies with local businesses and officials.
Source: SFBJ
Former Sears Site In Fort Lauderdale To Be Sold To Developer
National multifamily developer Aimco (NYSE: AIV) has the former Sears site, known as Searstown, in Fort Lauderdale under contract, according to three sources familiar with the deal.
Sears closed its doors in January after 66 years at 901 N. Federal Highway, on the north side of the Flagler Village neighborhood. Sunny Isles Beach-based RK Centers, led by Miami Heat co-owner Raanan Katz, owns the property through RK Associates and first filed an application to redevelop the property in 2020.
After buying Sears out of its lease, RK Associates purchased the last remaining parcel there from Sears for $4.3 million in January.
In its first quarter earnings report, Denver-based Aimco disclosed that it entered into a $100 million contract to purchase a 9-acre site in the Flagler Village neighborhood of Fort Lauderdale. It plans to develop the site with a 3 million-square-foot, mixed-use project with up to 1,500 residential units.
Source: SFBJ
Warehouse Vacancy Rates Sink To 27-Year Low
The nation’s industrial real estate market continues to set marks for low vacancy rates and high rents despite a “flatline” of e-commerce growth as many Americans return to their pre-pandemic routines, according to commercial real estate firm Savills.
Those steep vacancy declines and rent spikes are driving record development of new warehouses and other facilities, the firm said in its “U.S. Industrial Market Update – Q1 2022.” Developers are currently building nearly 750 million square feet, up from the 507 million square feet they were creating in the same quarter last year.
However, while all that new warehouse space is still under construction, U.S. industrial vacancy sank to just 4.2% in the first quarter, a 27-year low after declining another 130 basis points over the past year.
Those pressures have led to industrial space being essentially “sold out” in coastal locations near maritime ports, where renters now encounter double-digit rent growth in top markets like Southern California (up 18.8%), northern New Jersey (up 16.1%), and South Florida (up 15.8%).
Even when occupiers are lucky enough to find space to rent, they face the additional challenge of hiring enough workers to run the warehouses, Savills said. Average monthly warehouse job postings were up 126% over the past year compared to 2019.
In response, employers are offering higher wages for warehouse jobs including laborers and freight, stock, and material movers. The average advertised wage for warehouse jobs has risen steadily from just below $15 per hour in March 2021 to just over $17 per hour in March 2022.
Sorted by employer, the companies that have posted the most warehouse job openings since 2015 are: Amazon (4,125,477), FedEx (1,397,790), UPS (583,081), The Home Depot (310,477), and Lowe’s (146,599), Savills said in the report.
Source: Supply Chain Quarterly
Broker Sentiment Falls On Industrial. Yes, Industrial
That super hot industrial market? Brokers are losing confidence and seeing strain, according to the first quarter sentiment report from the Society of Industrial and Office Realtors. Office, though, is still on the rebound.
The industrial sector might seem an odd subject for a loss of confidence. The sector has led CRE through the pandemic, scoring top marks time after time and continuing to crush cap rates. But nothing can go on forever.
On-schedule industrial transactions had been increasing for almost a year. That changed in the first quarter of 2022 as they fell by 3%. On-hold transactions were up by 10% and cancelled transactions went from 4% to 6%. A “lack of space seems to have caught up to the industrial sector, which saw a 25% decrease in leasing activity in Q1. Only 61% of industrial SIORs reported high leasing activity, compared to 81% in Q4 2021.” It was the lowest leasing activity in over a year and 93% of respondents said vacancy was lower than a year before.
If you’re a broker, you need property to lease and sell. Without it, there’s little you can do other than perhaps donning a hard hat and heading to a construction site.
There’s been other growing evidence that areas of real estate were pressing the bounds. The CRE Finance Council (CREFC) found that overall sentiment among its board of governors took a nosedive for the first quarter of 2022. Similarly, according to the 2022 RCM Lightbox Investor Sentiment Report, another star, multifamily, is facing headwinds this year. And while there’s some room for cap rates to fall more with additional upward pressure on prices, as First American Financial Corporation notes, things have been getting closer to modeled cap rate bottoms.
Source: GlobeSt.
Commercial Real Estate Predictions For 2022
The commercial real estate industry has undergone a rocky road over the past two years, as pre-Covid-19 predictions have been upended due to the unforeseen nature of the pandemic. But as the world begins its shift toward post-pandemic life, I believe that commercial real estate is on track for a serious rebound this year. While not every area of commercial real estate is set to see an upswing, there are a few predictions that are safe to make based on trends in the market.
Here are a few of my commercial real estate predictions for 2022:
Commercial Real Estate Will Bounce Back
First and foremost, the biggest prediction for 2022 is the recovery of the commercial real estate industry. While it has taken a beating during Covid-19 (and the Omicron variant does present a hurdle toward full recovery), sound fiscal policy could help the industry recover. Monetary policy could also ease some of the long-term inflation pressures as commercial real estate values rise. The demand for real estate will be high, though the areas in which people are investing might look a little different than in previous years.
Industrial Real Estate Will Keep Growing
Industrial real estate has blown up over the past year thanks to the rise of e-commerce. Online retailers such as Amazon are driving the construction of warehouses to house their products, while retailers like Walmart and Kroger are snatching up distribution facilities left and right. Manufacturers are also going to keep investing in commercial real estate as they increase the amount of inventory they keep onsite.
Office Real Estate Won’t Be Out Of The Woods Yet
The one part of commercial real estate that still has some trouble ahead is office real estate. While it won’t be terrible, demand won’t be nearly what it was in previous years as companies continue to hold off on returning to the office. As working from home both full-time and part-time becomes more of the norm, office space utilization will most likely be on a downward trend.
Hospitality Will Rebound
It will be good news for hospitality, as business and leisure travel seem inclined to grow this year. The travel boom will drive luxury hotels to continue to embark on renovation projects that may have stalled during the pandemic. These projects will likely be driven by both city centers and the hotels themselves as the demand for more hospitality spaces continues its upswing.
The Supply Chain Will Be Retooled
The supply chain has suffered quite a blow during the Covid-19 pandemic, which will require some retooling over the next year. Because the space near seaports is not widely available, many developers will have to invest in commercial real estate inland. In order to account for rising transportation costs, manufacturers will most likely have to add distribution facilities in closer proximity to manufacturing facilities.
Although nothing is set in stone for the future of commercial real estate, it’s safe to say that the economy behind commercial real estate is here to stay and that these predictions are well on their way to becoming reality.
Source: Forbes
Small Industrial Tenants Feel Squeezed Out Of Booming Warehouse Market
Warehouses keep getting larger, catering to retailers like Walmart Inc., The Home Depot Inc. and the biggest industrial user of them all, Amazon.com Inc., that these days frequently take down 1 million square feet or more in a single lease transaction.
But while mammoth distribution hubs or sprawling manufacturing plants tend to be headline-grabbers, small warehouse users — including those needing 100,000 square feet or less — remain the bread and butter of many industrial markets nationally.
And in a warehouse market with constrained inventory, rapid rent escalation and fierce competition, it’s getting tough for small warehouse users to find, and afford, space.
The market right now is causing companies that want to be in warehouse space of, in particular, 50,000 to 150,000 square feet to internally examine their business models and figure out whether they really need space in a specific submarket — or at all, Ross continued.
And beyond higher asking rents, industrial landlords today are putting in higher annual escalation clauses into leases — what used to be 2% or 3% is now closer to 3% to 5%, said Warren Snowdon, managing director and principal at Foundry Commercial LLC.
Foundry Commercial LLC, which has a development division, in 2019 considered whether to build multiple small buildings or one 565,000-square-foot warehouse at an industrial park in Charlotte, North Carolina. It ultimately decided to build the larger warehouse, seeing where the broader market was going, Snowdon said.
That’s a decision more developers are making today, especially as costs in every part of the process — from land entitlement, acquisition and development — have escalated.
Aaron Ahlburn, practice lead for logistics and industrial data at Avison Young, said current construction is heavily weighted toward bigger users, with the average size of a warehouse delivering today measuring 350,000 square feet among U.S. markets it tracks.
That’s reflective of a market where deal sizes have gotten progressively larger, from an average of a little more than 40,000 square feet in 2008 to, today, trending closer to 70,000 square feet, according to Avison Young.
Still, the biggest warehouse users — ones at or larger than 1 million square feet, in particular — are usually the tip of the pyramid in any given industrial market, Snowdon said. Tenants smaller than that comprise the rest of the pyramid, with the 50,000 to 150,000-square-foot tenant size making up the base of the pyramid, or the bulk of a market’s activity.
There’s a bit of a blind spot right now in the industrial sector for that size user, which the industry needs to be cognizant of, Snowdon continued. But lack of inventory and competition also means tenants right now facing sticker shock for sub-100,000-square-foot spaces are, by and large, going to have to accept the reality of higher costs.
Source: SFBJ
SperryCGA | RJ Realty’s Ron Osborne Negotiates Sale Of Downtown Ft. Lauderdale Owner/User Office Building
Ron Osborne, Managing Director/Broker of Sperry CGA | RJ Realty, negotiated the sale of a vacant, single tenant office building at 2100 S. Andrews Ave. in Fort Lauderdale, Florida.
The deal closed April 18.
2100 S. Andrews Ave is a free-standing office building consisting of 5,200 square feet on 17,000 square feet of land with 21 parking spaces. It is situated on the SE corner of Andrews Ave and SE 21 St., ideally located minutes from the courthouses, Broward General Hospital, Port Everglades and Fort Lauderdale-Hollywood International Airport.
The property was listed at $2,800,000 and was purchased for $2,500,000 or $480 per square foot. The buyer will eventually relocate some of his staff to the building from its corporate offices in Port Everglades, however, they initially intend to lease it out for 5 years.
Osborne will be offering this location for lease with a minimum of a 5-year term at $30.00 NNN.
Osborne went on to state that finding well-located, small-user office buildings with onsite parking in the greater downtown Ft. Lauderdale area is a challenge.
The Seller, RFH 2100 LLC, was represented by Brian Batchelder of Berger Commercial Realty.
Outdoor Storage Demand Keeps On Truckin’
Seagis Property Group LP (“Seagis”), one of South Florida’s most active industrial real estate investors and owners, announced it closed on a $14.75 million acquisition of a 6.3-acre, fully paved and secured, trailer/fleet parking lot and maintenance facility located at 13399 NW 113th Avenue Road in Medley.
The property features a newly renovated, 14,056-square-foot warehouse with 12 drive-in doors, situated on an oversized lot with substantial frontage on Okeechobee (Route 27).
The property is fully leased for the next three years by Gables Transport, Inc., a national freight services and truck repair company that is a subsidiary of the property seller, RCR Investment Group. Seagis was represented in the transaction by Jose Sasson, Director of Investment Sales at Axiom Capital Advisors.
Strategically located in Medley, a gateway market, the property offers immediate proximity to South Florida’s highway infrastructure and easy access to the region’s busiest air and seaports while having substantial frontage on Route 27, one of the main thoroughfares in Miami.
This acquisition expands Seagis’ South Florida regional foothold to 114 logistics properties, totaling more than 6 million square feet of investment-grade industrial space.