Miami commercial realty due for rise as capital seeks deals
By Marilyn Bowden
South Florida's commercial real estate market is performing better than most, experts say, and values in some sectors may be rising within the next year.
"In my view it was relatively flat this year, but improving fundamentals remain a positive trend for 2012," said Howard Taft, managing director of Aztec Group, a real estate investment banking firm. "Miami is one of the few markets in the US offering a wide range of opportunities for domestic and international investors."
"It's a very vibrant market right now, with a tremendous amount of capital looking for deals," said Warren Weiser, co-founder of Continental Real Estate Cos. "The money side is fairly disciplined given what we've gone through before."
While aggressive cap rates are at pre-2008 levels, he said, "what is different is that rental rates in certain markets have declined and even stabilized somewhat in some areas."
The dynamics for retail, office and industrial sectors are similar, Mr. Weiser said; office "has some absorption to go through, but as space gets leased up, rates can start pushing a little higher. The retail market has held up very well, and industrial has not had much new product added to the market."
Retail in Miami-Dade has the lowest vacancy in the state, Mr. Taft said, and with little new supply and cap rates running 6.25%-7%, it's likely to remain stable through 2012.
"Miami's office market continues to favor tenants," he said. "Vacancy is still double-digit, and that could mean generous tenant improvement allowances and concessions."
Douglas Campbell, president of Campbell Real Estate Advisory Group, said despite the addition of 600,000 square feet at Brickell World Center, which lifted office vacancy in Brickell's class A sector to over 30%, rents have not dropped.
In fact, he said, "rates have bottomed out and are on the rise, with diminished concession packages when compared with a year ago at this time.
"Class A asking rates on Brickell now exceed $40-$45 per square foot, year one."
The Coral Gables and Airport West submarkets are following suit, Mr. Campbell said. "Class A vacancy in Coral Gables is still hovering around 15%, and has very few large contiguous space opportunities.
"In all submarkets, absorption of new space is usually due to a tenant relocating from one space to another rather than the introduction of new tenant need coming from outside of this marketplace. Expanded need for space is directly related to our local, national and global economy, which drive GNP as well as local employment trends."
In Airport West, industrial space under 50,000 square feet, which covers the needs of 60% of tenants, is thriving, said George Pino, founder and president of State Street Realty.
"In that range, rental rates for class A have gone up around 13% from a year ago, and vacancy is as low as 3%. It's a very active market."
In larger spaces, he said, "things aren't as rosy." He put vacancy there at about 8%.
"In my opinion, the next six to 12 months will start to see absorption in the largest spaces, because there are requirements out there that will eventually land somewhere," Mr. Pino said.
Lease rates for industrial space in Medley have stayed the same but are anticipated to rise soon, said Brian Smith, an executive director with Cushman & Wakefield.
"Medley has seen a lot of transactions this year," he said, "and occupancy has returned to very healthy levels."
Mr. Smith also reported a dichotomy between smaller and larger spaces.
"In spaces less than 40,000 square feet," he said, "rental rates will most likely increase in 2013, and it will begin to turn from a tenants' market towards a landlords' market.
"There are still multiple options for spaces 75,000 square feet and up, so rents there will remain stagnant until some of these are absorbed."
Positive indicators for South Florida's industrial market include the expansion of the Panama Canal, the Port of Miami tunnel and deep-dredging projects, and recent trade agreements with South Korea, Panama and Colombia, Mr. Pino said.
Although the US economy remains weak due to low consumer spending, Mr. Taft said, a lot of investors still want to buy US real estate.
"Some banks are saying it's a good time to lend," he said, "because property values are at their lowest ebb, so there's not much more downside.
"We're in the bell curve of refinancing. Trillions of dollars of refis will be coming due soon. Some will be easily refinanced, but there will also be opportunities for mezzanine lenders and buyers because owners will be underwater."
Going forward, Mr. Taft said, the biggest risk is the European financial crisis.
"We feel that a recession and collapse will affect many US companies," he said, "reducing the need for office and industrial space as well as retail space demand.
"Another thing to look out for is the Dodd-Frank Act dealing with regulation of banks. The lack of clarity there will spook a lot of investors.
"So we are entering 2012 with three legs on a four-legged chair."
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