- September 25, 2020
A surge in population along the Gulf Coast, combined with macro-economic changes in the way goods are distributed to consumers, is fueling a wave of new entrants into the region’s industrial property market.
Most recently, the trend manifest in Industrial Logistics Properties Trust’s $123 million deal for an Amazon-occupied fulfillment center in Ruskin.
The 1.02 million-square-foot distribution center, part of an 18-building portfolio deal sold for an overall $625.3 million by Cole Office & Industrial REIT Inc., marks the affiliate of RMR Group Inc.’s first major industrial real estate purchase in Florida.
Prior to the Ruskin deal, Newton, Mass.-based Industrial Logistics and RMR owned a lone industrial asset in Florida, a 37,000-square-foot building in Miami, according to the company’s website. In all, RMR and its affiliates control more than $30 billion in assets, according to its website.
Likewise, Cole Office & Industrial’s $103.6 million purchase of the Ruskin property in June 2016 was its first in Florida. In the past three years, investors such as Tratt Properties, of Phoenix, and Paul V. Profeta & Associates of New Jersey, and others, have delved into the Central Florida industrial property market for the first time.
Ryan Vaught, an executive managing director at commercial real estate brokerage Colliers International Tampa Bay, says the compressed capitalization rate for the southern Hillsborough County building occupied by Amazon — at 5.22% — and investors’ appetite for top-tier locations reflects the demand for Interstate 4 corridor properties.
“A low five percent cap rate is a significant change from where we were last cycle,” says Vaught. “Well-located real estate is seeing extensive pricing competition.”
Industrial Logistics, which says it acquired the Cole Office portfolio at a 6.4% cap rate overall, assumed a $57 million mortgage as part of the transaction. Company officials did not return telephone calls for comment on the acquisition.
Nationwide, buyers of industrial product are feeling pinched by rising prices, reluctant sellers and a lack of high-quality properties that are meaningfully equipped to handle the rise in e-commerce sales and so-called “last-mile delivery.”
And while more than 400 million square feet of new industrial space is under construction in the U.S., according to National Real Estate Investor, development in the sector in Central Florida has been relatively constrained — despite Florida’s ranking as the third most populous state in the country.
“Industrial is a preferred asset class among REITs and other institutional buyers, there are simply more buyers than there are sellers and, meanwhile, demand has been strong and the outlook remains strong,” says John Jackson, a director of land and industrial brokerage in commercial real estate brokerage firm Cushman & Wakefield’s Tampa office.
“From an investment perspective, we’re seeing second and sometimes even third rounds of bidding on industrial properties,” Jackson adds. “It’s what’s causing cap rates to continue to go down and new buyers to continue to come into this market from elsewhere.
“It’s a trend we’ve seen for some time now — growth through acquisitions, be they single assets or portfolios — is one way investors are entering this market quickly.”
During its late April inaugural Central Florida Industrial Summit, a Colliers International poll of the gathering’s more than 50 developers and industrial real estate owners — including representatives from Cabot Properties, McCraney Property Co., Exeter, Blue Steel Development and Prologis, to name a few — backed up the shift.
In response to the question “Did your firm own industrial real estate in the Central Florida region 10 years ago?”, 42% indicated they did not.
Another question asked if attendees planned to either buy or sell industrial properties within the region over the next 24 to 36 months. Eighty percent of respondents identified themselves as buyers.
The push to buy modern industrial properties from Tampa eastward into the Interstate 4 corridor also comes amid a change in the way distribution centers are viewed by retailers and logistics firms alike.
As online shopping accelerates consumer desire for quick access to merchandise — and as Amazon and Wal-Mart Stores move to provide same-day delivery — retailers are increasingly viewing their warehouses more as integral parts of their overall supply chain. Previously, goods often sat in warehouses for extended periods until retail locations required updates in inventory.
With e-commerce, distributors are typically replenishing goods more often from warehouses and churning inventory more frequently. They also need to be closer to consumers to meet ramped-up delivery schedules.
Central Florida benefits from the trend because it is within a five-hour’s drive to more than 18 million residents.
“The Sunbelt in general and Tampa to Orlando more specifically have been very active,” Vaught says. “From a distribution standpoint, you need to be either in the I-4 corridor or on or close to Interstate 75 to have an A-plus location, so a lot of investors today are even willing to overpay for properties somewhat to be in a solid position for the future.”
Jackson agrees the industrial landscape has changed as usage has adapted to accommodate e-commerce fulfillment.
“There’s been a tremendous shift of products and inventory away from retail centers to fulfillment centers, and that’s only expected to continue,” he says.
That should bode well for properties such as the 3350 Laurel Ridge Ave. building occupied by Amazon in Ruskin, which opened in 2014 and today employs more than 1,000 workers, Jackson and Vaught say.