Rents rose across all asset classes in South Florida in the fourth quarter of 2022 as vacancies dwindled further amid a development rush to meet demand.
That bodes well for builders and real estate agents and shouldn’t negatively affect businesses and residents (potential or already in the area) with enough cash to cover costs. For those struggling to get by, it may herald more difficult times ahead, as rents hit record levels with little sign that the trajectory will change this year.
Strong demand and a shortage of available space were no more evident than in Miami-Dade, where industrial properties were historically in low supply, with office and retail openings close behind.
Preliminary market data for the fourth quarter of miners shows that the Miami-Dade industrial market achieved an all-time low vacancy rate of 2.1%. That’s despite the addition of 4.6 million square feet of new construction, which was “significantly outpaced” by the net absorption of 5.8 million square feet.
“Continued tenant demand and population growth are expected to bode well for market fundamentals in 2023, as an additional 6 million square feet under construction will provide new and existing tenants with more space options in a tight market,” Colliers staff wrote.
Average triple net lease rate — under which tenants agree to pay maintenance and insurance fees in addition to their rent — industrial property also rose to a new high of $13.13 per square foot, an increase of 14.6% over the same period of the previous year.
Vacancies in Miami-Dade’s retail and office markets also fell to 3.3% and 10.1%, respectively, while prices rose.
Rents in both asset classes increased 12% between 2022 and 2023, with sales prices per square foot of $44.16 for retail stores and $57.18 for offices.
In retail, the South Dade, Kendall and Miami Airport area submarkets experienced the most leasing activity, with between 215,000 and 237,000 square feet leased in each area. The largest lease in the fourth quarter was club studio rental of 35,363 square feet in Miami World Center hub.
Meanwhile, the office market enjoyed an overall 10% annual increase, with Class A rental rates growing 12% across the board.
The top three leases struck in the fourth quarter were concentrated in the Brickell area of Miami. Kirkland and Ellis Y Santander International Bank signed new leases for 99,418 sf and 95,998 sf for a tower still under construction at 830 Brickell, while Bilzin Sumberg renewed his lease 85,095 sf at 1450 Brickell.
“The office market recovery from the global pandemic has been slow and uneven, but South Florida has done well and emerged as a premier office market,” the Colliers staff wrote.
“Despite rising interest rates and economic uncertainty, South Florida and other Sunbelt markets like Austin, Dallas and Nashville saw the most tenant activity. While investment activity slowed in late 2022, strong new-to-market activity, particularly in Miami-Dade County, combined with limited supply and major renovations on existing buildings have pushed rental rates to all-time highs. historical”.
Following the eighth consecutive quarter of declining market vacancies, the median asking rate for commercial space rentals in Broward soared to a new high of $26.84 per square foot.
Only 4% of available retail properties remained open to new tenants in the fourth quarter, a decrease of 0.7 percentage points from the same period a year earlier, indicating that the additional 329,000 square feet of retail stores that currently under construction will be used quickly upon completion.
Colliers staff said an influx of new-to-market tenants coupled with a growing trend of clicks to bricks – a marketing strategy whereby companies drive online shoppers into physical retail spaces – will likely keep market fundamentals healthy for at least the rest of the year “as flagship stores flock to areas with a high population growth.
“This retail immigration has provided the Broward County retail market some insulation from the macroeconomic headwinds facing the US, and as a result, the Broward County retail market is anticipated to continue to flourish through 2023,” they wrote. .
Broward office and industrial vacancies grew in the fourth quarter. For the county office asset class, which had 11.7% of its spaces vacant as of December, the end of 2022 marked the second consecutive quarter of vacancy increases in the county. For the industry, which reached 4.3% vacancies, it was the first time since the second quarter of 2021 that spaces were emptier than in the previous quarter.
Sales rates for both classes soared anyway, with industrial leasing rising 26.7% year-over-year to $13.86 per square foot and office space rents growing a comparatively modest 5% over the same period. at $37.22, another record.
Palm Beach County
Palm Beach offered a similar mixed bag in terms of vacancies, as rents at all three assets rose to record levels.
Retail vacancy rates were flat in the fourth quarter, hovering at 3.5%. Continued population growth and increased tourism should lead to the 610,000-square-foot development renting out quickly once completed, Colliers said.
The submarkets with the largest retail leasing action in 2022 included West Palm Beach, with more than 300,000 sf leased; Boynton/Lantana, which leased almost 215,000 square feet; and Delray Beach, with more than 200,000 leased square feet.
Conn’s Home Plus 47,209 sf lease a County Cross Square in West Palm represented the largest retail deal in the fourth quarter, followed a distant second by the new 14,000-square-foot New Life Tabernacle lease in Glades Plaza.
Median rent for commercial space increased 8.9% to $29.16 per square foot.
Office vacancies in Palm Beach held at 8.3% in the fourth quarter thanks to “strong leasing activity” throughout the year, even as “hybrid work patterns continue,” while the availability of industrial space it increased slightly for the third consecutive quarter to 3.6%.
The county has approximately 238,000 square feet of industrial space under construction and a whopping 1.1 million square feet of office space in some form of development. But Colliers forecast that economic uncertainty is likely to cause office developers to “stay on the sidelines in 2023 helping to maintain the balance between supply and demand across the region.”
Nonetheless, office rents rose more than 9% last year to $40.70 per square foot, the highest rental rate for the asset in history.
That was nothing compared to the price increase industrial rents experienced in 2022. Costs per square foot for triple-grid leased space soared 22.7% to $13.26, also an all-time high.
“The strong leasing activity can be attributed in part to the lull in selling activity as many investors hold out until the interest rate hike takes hold,” Colliers staff wrote. “As the market continues to move in this direction with a low vacancy rate…owners are anticipated to have the upper hand in 2023.”
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