Industrial office brokers see hints of relief after long, slow summer
By Marilyn Bowden
After one of the slowest summers in recent memory, industrial brokers say they're beginning to see signs of recovery in the local market.
"The general mood is that things are starting to turn around," said Rene Vivo, vice president at Codina Realty Services Oncor International. "We're seeing some of the larger tenants coming back, but activity in the over 100,000-square-foot range is still sporadic and inconsistent. Deals of 20,000 square feet are still the backbone of the market."
Paul Isenbergh, senior director at Cushman & Wakefield, said preliminary reports on third quarter leasing activity in Miami-Dade show a decrease in vacancy compared to the second quarter from 9.5% to about 9.3%.
"Although the market has been relatively slow," he said, "properties of about 15,000-20,000 square feet have been relatively active, although not as much as they used to be prior to 9/11 and the economic downturn.
"But for larger tenancies, it's very slow."
Mike Silver, first vice president at CB Richard Ellis, agreed that most lease activity has been in the under-30,000-square-foot range, but said that recently there have been more companies out in the field looking at properties than earlier in the year.
"Some who were looking for space here a year ago but held back after 9/11 are now going forward again," he said. "Or if they're not actually going ahead, they're starting to ask the right questions.
"Where that will go remains to be seen. But their advantage is greater now. Before 9/11 this was a landlord's market. Now they can easily save $1 a foot."
The lower prices are largely due to the large amount of sub-lease space on the market - more than 660,000 square feet at the beginning of the year, according to reports from several brokerages, and not much improved since.
"There's been minimal pick-up in sub-lease activity," Mr. Isenbergh said. "There are still several large blocks in the Medley area and Airport West."
Sub-lease space is being marketed very aggressively, Mr. Silver said - in some cases at a 20%-30% discount.
"Landlords in some business parks are having to decide whether to compete against their own tenants to make the deals," he said, "until such time as this overhang of sub-lease space is absorbed.
"They can't achieve what they feel is fair market price, and they certainly can't increase rates."
In such a climate, Mr. Isenbergh said, any developer who had planned to build an industrial structure on speculation has put it on hold.
"There's no way they're going to go into the market to compete at rates much lower than what their break-evens are," he said.
The market for sales also continues to be relatively soft, Mr. Isenbergh said.
"Of the five industrial buildings for sale in Airport West," he said, "one is a conversion to telecom space. The other four are in excess of 100,000 square feet each. Three of those have been on the market for 10 months or longer."
There's still much interest from investment companies and real estate investment trusts, or REITS, Mr. Silver said, and others looking to acquire multi-tenant properties.
"We don't have an abundance of that type of inventory in the market," he said. "When something of quality does become available, it's often more expensive than they want to pay."
Sales activity is also being driven by skyrocketing prices in the West, Mr. Vivo said.
"The whole West Coast market is untouchable," he said. "We're seeing some of the West Coast investment groups crossing the Mississippi and looking all along the Eastern corridor."
Better-located industrial-zoned land "has also enjoyed good activity levels," Mr. Silver said. "Airport West and Medley are seeing increased prices per square foot for vacant industrial land."
In comparison to the majority of US markets, Mr. Isenbergh said, Miami-Dade is looking good. In the main, that's an accident of geography.
"We're a little healthier than some of the northeastern and western markets," he said. "As gateway to Latin America, we have the economies of a variety of different countries impacting us, not just the US."
Mr. Silver said Latin American turmoil is behind the dearth of activity among users of 50,000 square feet and over.
"In this market that means logistics and freight-forwarding companies," he said. "They have not yet jumped back in. We're in the part of the cycle right now where because of economic uncertainty many who import from Caribbean and Latin American markets prefer to wait and see. They are not yet obligating themselves for space."
However, Mr. Vivo said, "investment money coming out of these countries has increased significantly. Latin American investors are looking for very marginal returns, as long as it's a solid investment opportunity.
"So a lot more of the A-to-B product is being absorbed by investors who normally would not be in our market."
With companies still on the fence about expansion due to continued economic and political uncertainty nationwide, Mr. Isenbergh forecasts no significant change through the end of the year.
Mr. Vivo looks forward to some recovery.
"Brokers are all talking about some of the larger users coming back and looking at the market again," he said. "Hopefully some of this will translate to completed transactions by the end of the year."