Introduction: Current state of the market
Overall, the current state of the Miami-Dade County Commercial Real Estate market is very healthy. Rental rates per square foot for all regions, including North, NW/Medley, Hialeah, Central-East, Central-West, Central, Airport-West, Bird/Tam and South—all located within Miami Dade—continued to rise to just under $11 sq.ft. while vacancy rates for Class A commercial industrial buildings continued their downward trajectory to under 5 percent.
The commercial real estate market in South Florida continues to be strong for a few reasons. First, there is strong demand from investors because investment funds require them to purchase products in stable, growing markets. As a result, there is limited space for individual investors, which increases rates. Tenants of Class A commercial buildings are also attracted to South Florida because of its central location and life quality: B sinesses have easy trade access to Latin America.
Class A tenants should understand that, because the overall market is strong, and will only strengthen from here, vacancy rates will continue to stay down, while asking rates will remain high. Because of this, many landlords will feel more comfortable with their ability to fill space at their desired rates and thus, it’ll be more difficult for tenants to negotiate low deals. Due to these current market conditions, we recommend that Class A tenants find new buildings immediately, if they need to. Otherwise they should stay put because, in the coming years, it’s highly unlikely they’ll find better deals.
Industrial vacancy rates for Class A commercial real estate properties continue to drop in the Miami-Dade County market. At the end of the first quarter 2015, rates were as high as 5.3 percent. By the end of the second quarter, rates sat at 5 percent and at the end of the third quarter, rates dropped slightly to 4.9 percent. As the fourth quarter concluded, rates dropped to a low of 4.7 percent.
What do these percentages mean for Class A commercial tenants? If they’re thinking about moving out of their current buildings, history tells us it’s better to make that decision now rather than later. Total market rates, for example, skyrocketed to 10 percent in 2009 (during the U.S. recession) before dramatically decreasing the following six years. While rates likely won’t fall as much as they previously did in such a short time period, that doesn’t matter. What does matter is how little space is currently available, and that’s not great news for those looking to find bargain rates.
Want to know about current statistics and trends in industrial lease and vacancy rates?
Grab your copy of “Miami-Dade County Industrial Market Report Year-End 2015” PDF by clicking the link below! This free report outlines the current conditions in industrial market of Miami-Dade County.
Overall Class A commercial absorption in the Miami-Dade market generally increased throughout 2015, although Q4 square footage marks were up slightly from the previous two quarters. Absorption between Q1 and Q4 sat at 1,362,448, 785,849, 859,029 and 901,957 sq.ft, respectively. Overall, net absorption has been trending upward the last 10 quarters in the Miami-Dade market with the lowest square footage total coming in Q4 of 2013. And, as we’ll mention later in more detail, this is nothing to worry about considering the commercial real estate market is making a slow ascent out from a three-year lull between 2010 and 2012.
Why should the above matter to Class A commercial property owners? As more commercial real estate is sold in a given amount of time, vacancy rates decrease and asking rates from tenants increase. This strongly indicates two things:
If tenants in Class A commercial buildings are thinking of moving out of their current building, they need to do so immediately or they risk missing out on the best deals.
This is a signal to developers to begin developing new Class A commercial buildings.
Avg. Asking Rate for Class A vs. Class B
Commercial vacancy rates have been plummeting since their high of nearly 10 percent between 2009 and 2010. In 2015 overall rates for commercial properties were down to 4.9 percent. That’s the lowest since 2005 and 2006 when rates sat around the same number.
Because Class A commercial vacancy rates are down—a desirable situation for landlords—the avg. asking price is going up for tenants. That’s bad news for Class A tenants hoping to find once-in-a-lifetime deals. However, on a positive note, commercial real estate isn’t rapidly strengthening, which means there are still some quality Class A leasing deals to be had. We should mention that if Class A tenants haven’t already begun the process of researching new buildings and discussing possible rates with landlords, they should do so.
Construction and Deliveries
As a result of low vacancy rates and higher asking rates, more large commercial buildings are being constructed to meet growing demand. The number of buildings constructed and their square footage in the Miami-Dade County district varied each quarter in 2015, but overall results were positive.
In Q1 six buildings were constructed totaling 790,194 sq.ft. In Q2 two buildings were constructed totaling 189,140 sq.ft. In Q3 square footage rose by over 401,000 sq.ft. to 590,937 sq.ft. as seven buildings were built. Q4 slumped slightly but still came in strong at 459,805 sq.ft. Broken down further, only seven of those buildings were under 99,999 sq.ft., and twelve were between 100,000 and 249,999 sq.ft.
Total year-to-date industrial building sales activity also increased by $14,701,252 between the first ninth months of 2014 and the first nine months of 2015. During those months in 2015, 105 industrial sales transactions closed for a total volume of $434,457,635. In 2014 that number sat at 112 transactions for $419,756,383.
Larger buildings are being constructed because the market is not only strong now, but exhibiting equally impressive growth trends. Owners today feel more comfortable renting spaces at their desired rates than they were only a few years ago. On the other hand, take bad markets such as the ones that existed around 1993 and 2008. During this period, owners were more cautious about renting spaces because they feared tenants might fail to meet payment deadlines.
As proof of the market’s current stability and future growth, we simply need to compare current and past market conditions. From 1982 to the early 2000s, the average delivered square foot sat at or above 3 million sq.ft. In 1993, around the time of the U.S. recession, deliveries plummeted to 1.8 million sq.ft before skyrocketing back up to 4.2 million sq.ft in 1994 as the economy recovered. For seven years thereafter, deliveries sat around 3 million sq.ft. It wasn’t until the mid-to-late 2000s, when the U.S. entered another recession, that deliveries fell once again this time to their lowest square footage mark yet. Between 2008 and 2012, delivery square footage averaged just over 1 million sq.ft. However, since then, deliveries have rebounded.
Based on this current data, we expect construction to trend upwards in the coming years.
Key takeaways and what to do next
For tenants of Class A commercial industrial buildings who are thinking about moving to new buildings, the time is running out to do so. As we noted, the overall commercial real estate marketing is steadily improving. Vacancy rates are dropping, asking rates are increasing, absorption is rising and landlords, therefore, are steadily gaining more leverage at the bargaining table.
If you’re not sure where you currently stand in the market, it’s important to talk to an expert. The professionals at Rise Realty are distinguished leaders in real estate in South Florida and will help you understand your current situation as it relates to market conditions in your area. We then help you decide whether to stay in your building or look elsewhere for better deals. For more information, call Rise Realty at 305-859-1606 or visit us online at www.RiseRealty.com.
Want to know about the current trends in commercial lease and vacancy rates for office, industrial and retail space?
Grab your copy of “2016 Miami-Dade County Commercial Real Estate Market Report” PDF by clicking the link below! This free report outlines the current conditions in commercial real estate market of Miami-Dade County.