A Full Warehouse
Commercial real estate by Jean Gruss | Editor/Lee-Collier
From Tampa to Naples, industrial space is full of tenants who cater to the needs of Florida's growing population. But the slowing residential market may free up some space.
During the housing boom of the last few years, the plumbers, electricians and other trades who fed off the residential market filled up industrial buildings from Tampa to Naples.
Now that the housing market has slowed, some brokers and landlords worry that vacancies in those industrial buildings might rise as tradesmen vacate space. Industrial buildings include warehouses and "flex" space, which has office space in a small portion of an industrial building.
The bad news for landlords may be good news for tenants. Industrial-space rents are likely to flatten or may even decline in some areas, some observers say.
Charlotte County is a case in point.
According to the latest data from market tracker CoStar Group, Charlotte has the lowest industrial and flex space vacancy rate of any county along the Gulf Coast. Just 0.7% of the county's 3.4 million square feet is vacant.
But longtime Charlotte broker Ron Struthers with Remax Properties estimates that more than 80% of the industrial space in that county is filled with tenants who are somehow related to the housing industry, from cabinet makers to electricians.
Some tenants are not renewing the space they leased a few years ago and there aren't many new tenants are waiting to take their place. He says he knows of several buildings in Charlotte County that have empty space and may not have been counted by CoStar.
In another worrisome sign, Struthers estimates as much as 1.5 million square feet of industrial space is either under construction or planned in the next 12 to 18 months, raising concerns about overbuilding in a slowing market.
However, developers may be holding off. Struthers says he knows one developer who has abandoned plans for a 70,000 square foot building and the pipeline may be closer to 1 million square feet today.
Other builders who have been scouting sites in Charlotte County are holding off. "A year ago I'd be pretty excited about it because the housing market was in high gear," says Todd Gates, president and CEO of Gates McVey, the third largest commercial builder on the Gulf Coast.
That could change quickly, however. "In a year, it may be gangbusters," Gates says.
For now, Gates says the best opportunity for new business in Charlotte is building medical-office space. "Medical is sort of recession-proof," he says.
Further south, in Lee County, the smaller spaces that building trades prefer are starting to free up, says independent broker Robert White of Bob White Inc. He says many businesses that chose to buy their own spaces ranging from 1,500 to 2,500 square feet in recent years are now putting them up for sale.
However, there is still a shortage of large distribution space. Historically, Lee County has not been a bulk distribution center so there isn't a large inventory of big buildings. But as Southwest Florida's population has surged, demand from national and regional distributors has grown.
Some developers are stepping in to fill the void, such as Eastgroup Properties' project near Interstate 75 in Fort Myers. The real estate investment trust recently broke ground on a 372,000-square-foot distribution project at SunCoast Commerce Park. The company plans to build another four buildings totaling 250,000 square feet nearby and is scouting other sites throughout Lee County.
One worrisome trend this year in Lee and Collier counties has been that more tenants have vacated than leased space. Tenants in Collier County have vacated 257,182 square feet more than they leased so far this year and tenants in Lee vacated 110,014 square feet more than they leased.
That hasn't been the case in the Tampa Bay area. In Hillsborough and Pinellas counties, companies have leased nearly 2.4 million square feet more than they vacated, CoStar data shows.
Rian Smith and Mike Davis, industrial brokers with Cushman & Wakefield in Tampa, estimate as much as 1.5 million square feet of industrial buildings will be added in Hillsborough and Polk counties by the end of 2007.
"A lot of established institutional players are bullish on this market," Smith says. "Right now, the landlords are in the catbird's seat."
For one thing, rents spiked more than $5 per square foot for top-quality industrial space, up from $3.50 just a few years ago, Smith says. "I don't see it going down," Smith says, though rents may flatten if a lot of new buildings come on line at the same time.
For example, at the Port Ybor project near downtown Tampa, developer Trammell Crow was getting $4 a square foot in 2005. Within a year, rents jumped to $5.50 a square foot, a 38% increase. The development on land owned by the Port of Tampa is located near the intersection of Interstates 4 and 275.
Because the Tampa Bay area is more of a distribution hub, it isn't as affected by the housing-sector slowdown. Large, publicly traded companies scouting sites in the Tampa Bay area for industrial development include ProLogis and Duke Realty Corp.
Meanwhile, the Sarasota area may become more of a distribution center for the rest of Florida. Trammell Crow is leasing the Meridian Distribution Center, a massive 907,237-square-foot former Winn Dixie distribution facility the size of nearly 16 football fields.
According to a traffic study commissioned by Trammell Crow, truck drivers can reach 87% of the state's population from Sarasota in a nine-hour day driving 60 miles an hour. That's better than Orlando or Lakeland, from which drivers can only reach 60% of the state's population in that same amount of time. That's because Dade County is within a one-day reach from Sarasota, but not from Lakeland or Orlando.
Until it's leased, the Meridian Distribution Center will skew Sarasota's industrial vacancy rate to 20.5%. If you remove it from the vacant inventory, Sarasota's industrial vacancy rate is 5.5%, more line with its neighbors.
COSTART INDUSTRIAL FOCUS
Warehouse, distribution and other industrial buildings are bulging with tenants from Tampa to Naples. Here's a snapshot of the industrial market along the Gulf Coast. The numbers include "flex" space, which combines warehouse space with a small portion of offices. Space sizes are in square feet. Data is through Nov. 6.
Number of buildings: 1,439
Total space: 52,985,422
Percent vacant: 7.2%
YTD absorption: 1,379,770
Number of buildings: 1,344
Total space: 32,802,117
Percent vacant: 5.3%
YTD absorption: 1,002,235
Number of buildings: 314
Total space: 7,813,543
Percent vacant: 10.5%
YTD absorption: ?87,448
Number of buildings: 342
Total space: 6,049,128
Percent vacant: 20.5% *
YTD absorption: 34,011
*Sarasota's vacancy rate is 5.5% without the
907,237-square-foot Meridian Distribution Center.
Number of buildings: 315
Total space: 3,446,941
Percent vacant: 0.7%
YTD absorption: ?14,402
Number of buildings: 1,490
Total space: 24,207,830
Percent vacant: 2.2%
YTD absorption: ?110,014
Number of buildings: 857
Total space: 11,368,851
Percent vacant: 2.6%
YTD absorption: ?257,182
Source: CoStar Group