The overall South Florida market has fared well in 2003. Industrial landlords are doing as well as they ever have, in spite of the slackened demand. There are several new retail developments to speak of, and overall, experts predict that the market will be even better in 2004 than it was in 2003. In the multifamily sector, a lack of large tracts of land for new development and an increasing demand for rental apartments in the eastern areas of South Florida are leading to a number of small, in-fill developments and redevelopments. Revitalized economic conditions are helping South Florida’s office market. The area’s strong supply-demand fundamentals and resiliency make it a favorable location for developers and businesses.

Industrial

Airport West, the submarket in west Miami-Dade County, continues to offer easy access to the cargo section of the Miami International Airport and, with that, entrance to the worlds of Central and South American commerce. Because of the overall sluggish economy and a downturn in international trade, vacancy rates are in the 10 to 12 percent range. But despite the slackened demand, landlords are doing as well as they ever have, because this area was not overbuilt and favorable interest rates have compensated for the vacancies. Still, expect a turnaround in 2004 with vacancy rates dipping below 7 percent.

Nearby areas, including Medley (an Airport West competitor), have gained in appeal due to their relatively low rent prices and comparable proximity to transportation hubs. But land remains at a premium, so as demand grows and supply dwindles, prices have nowhere to go but up. Rental rates in west Dade are at about $6.50 per square foot compared to $7.50 in nearby Broward.

Because land has become more expensive over the past couple of years, it has become difficult to make money without seeing rents increase proportionally. Some areas, like Coral Gables and nearby Marina Lakes, will be forced to go commercial because of prohibitive industrial prices. There is also a new demand for small-bay warehouse and industrial condominiums. The prospect of buying, instead of leasing warehouse space, has become attractive in light of favorable interest rates.

In industrial terms, the best and most popular building in South Florida for moving freight fast and efficiently is a 24-foot clear structure at dock height, with 38 percent lot coverage and a rear loading area that keeps the offices in front and the business separate from the trucks.

The most active developers in South Florida include The Easton Group, Codina Group, TA Associates, Principal Life Insurance, AMB Realty and Sunbeam Properties.

Going forward, expect the demand for land in the west Dade market to continue to increase. Trends in international trade will continue to significantly impact the industrial real estate market in South Florida, and in Miami in particular.

— Edward Easton, chairman, The Easton Group

Retail

“Shoppertainment” is the buzzword in South Florida these days. The Millennium, Hollywood, Florida’s 1 million-square-foot retail center, is offering a farmer’s market, an ice-skating rink, a small roller coaster, bumper cars, an indoor playground and a carousel to lure shoppers who prefer discounts and entertainment to traditional malls. Sawgrass Mills outlet mall in Sunrise is utilizing fun and fantasy to make shopping more than a transaction. This spring, the mall will open Wannado City, a 140,000-square-foot area where children can role-play adult occupations. The idea is to integrate retail and entertainment by offering sophisticated and imaginative leisure options with a unique shopping experience.

Another popular concept is the service mall, which functions as a community center and complements the nearby retail mall. The 120,000-square-foot Wellington Mall is just that sort of asset. For 15 years the center has been a fixture in Wellington by offering a post office kiosk, sheriff’s office, Planning and Zoning Department, a bike repair shop, tailor, salon, preschool, tutoring service, realtor, insurance agency and a leather shop that serves the equestrian community. By offering specialty services, the mall is able to thrive, despite its proximity to the 1.3 million-square-foot Mall at Wellington Green, which opened in October 2001.

Wal-Mart was asked by a Miami community to think outside the “box.” In 1999, New Plan Excel bought the 900,000-square-foot Mall at 163rd Street in unincorporated North Miami-Dade County for $20 million. The plan was to redevelop the mall, currently anchored by The Home Depot and Marshalls, by first adding a 226,000-square-foot Wal-Mart Supercenter and then by adding retailers such as OfficeMax, Ross Dress For Less and Linens ‘n Things. It took more than 2 years to negotiate, but Wal-Mart has agreed to give the store a South Florida flavor, designed to complement the pedestrian-friendly area. The Wal-Mart Supercenter will open in spring 2005.

The Miami-Dade County public library system is launching an aggressive expansion plan into shopping centers. Over the next 3 years, the plan calls for eight mini-libraries to be leased at $20 to $27 per square foot for 5-year terms with 3-year kick-outs. The storefront locations will range from 1,200 to 3,500 square feet and require accessibility, visibility, ample parking and build-out allowances.

Transactions flourished in South Florida this year. Continued residential growth, low interest rates and price inflation prompted buyers to pay top dollar for assets, shocking even the most seasoned investors. Growth in Broward County was concentrated in Miramar, Pembroke Pines and Weston. In Fort Lauderdale, the Federal Highway corridor has seen an abundance of redevelopment. Significant transactions in Broward County included Hollywood Hills Plaza, a 372,000-square-foot community center, which sold in April for $39.5 million. Weingarten bought the Publix- and Target-anchored center from Ross Matz. In March, Arvida sold the 157,898-square-foot Weston Town Center to a private investor for $34.3 million. The Publix-anchored lifestyle center, which sold for $217 per square foot, is an eclectic mix of upscale retailers.

In Miami-Dade County, mixed-use residential and retail projects are popping up in Brickell, Coral Gables and Kendall. In June, the Soffer family, which owns Turnberry Associates of Aventura, sold Flagler Park Plaza to Principal Global Investors, a division of Principal Financial Group, for $54.3 million. The 350,000-square-foot community center is anchored by Publix, Linens ‘n Things, PetsMart, Michaels, Pep Boys, Walgreens, Big Lots, JoAnn Fabrics and Office Depot.

Palm Beach County saw more than 1 million square feet of new retail in 2003, with Boca Raton ranking as one of the county’s top markets. Publix developments were hot commodities, primarily in the northern part of the county. Two transactions in Palm Beach County exceeded $45 million this year. Plaza at Delray in Delray Beach sold for $46.7 million in March. Linton Delray, a Delaware limited liability company controlled by Investcorp International, bought the 332,605-square-foot Publix-anchored community center from St. Stephen L.P., a joint venture between AMB Property Corporation and Lefmark Group. This center’s successful redevelopment from enclosed mall to open-air center has been noted with design awards. The sale of Mission Bay Plaza in Boca Raton raised eyebrows with its total of $52 million. Investcorp bought the 272,914-square-foot Albertsons-anchored community center from Invesco Realty Advisors in April.

Overall, retail experts predict that the South Florida retail market will be even better in 2004 than it was in 2003, particularly for national retailers, which did not fare as well as local and regional retailers.

— Lynn Leonard, vice president of marketing, NewBridge Retail Advisors

Multifamily

Several major trends are influencing the South Florida apartment market. Most notably, the relative lack of large tracts of land for new development, as well as the increasing demand by the rental market for apartments in the eastern, more urbanized areas of South Florida, is leading to several small, in-fill multifamily developments and the renovation and redevelopment of the existing multifamily stock. Most of the new institutional-grade development, however, is taking place in southern Miami-Dade and western Palm Beach counties, as Broward County lacks large tracts for new development. Major new multifamily developments include Eagle Point Apartments (194 units) in Pompano Beach; Archstone at Hibiscus (304 units) and Alta Pines Apartments (264 units) in West Palm Beach; and Hibiscus Point Apartments (212 units) in Miami.

The South Florida area is expected to add approximately 9,000 apartment units into the market in 2003, of which 3,800 units will be in Palm Beach County, 2,700 in Broward County and 2,500 in Miami-Dade County. In 2004, only 6,000 units are expected to enter the market, 5,000 of which will be located in Palm Beach and Miami-Dade counties, where large tracts of land for institutional-grade multifamily developments still exist. In Broward County, which has little virgin land for new development, only 1,000 new units are expected to come on line in 2004.

Vacancies in the South Florida region are currently at an estimated 6.9 percent in the third quarter of 2003, and are expected to climb to 7.7 percent by mid-2004.

Rents average $944 per month, up from $922 a year ago, an increase of 2.4 percent. However, the softness in the current apartment market in South Florida has slowed the growth of effective gross rents, which include landlord concessions, to less than 1 percent per annum, leading to an average effective gross rent of $882 per month in South Florida.

As of October 3, 2003, rates for the 10-year Treasury Note were trending downward. Multifamily loans for investments from $750,000 to $3 million in value are at 6.5 percent for a 10-year fixed loan. The 10-year loan rate by Fannie Mae for multifamily developments, with a 75 to 80 percent loan-to-value ratio, ranges from 5.77 to 6.01 percent. Conduit spreads for smaller multifamily developments are hovering between 150 to 210 basis points above the 10-year Treasury, while larger conduit loans are selling from 130 to 170 basis points above the 10-year Treasury.

— Mark Lasman, senior investment associate, Marcus & Millichap

Mixed Signals: A Closer Look at Miami’s CBD Eric Siegrist The Year of the Tenant “Expect extremely aggressive rates to begin stabilizing now that space is being absorbed in the new developments on Brickell and in sublet availabilities throughout the CBD,” notes Scott Strickland, a leasing director with Jones Lang LaSalle. Photo credit: Smith Aerial Photography, Ft. Lauderdale - Orlando – Atlanta In an ironic twist, law firms — an often-undervalued tenant category — are largely responsible for sustaining demand for Class A office space in Miami’s central business district (CBD) as many of the heavyweights in the “prized” financial services and accounting sectors dramatically slash workforce levels or make a complete exodus from this 5.1 million-square-foot marketplace. But even with law firms such as White & Case expanding and signing new leases and Baker & McKenzie stepping up from a Class B building to backfill vacated space, there is a clear and unmistakable demand shortfall. Motivated sellers inevitably adjust prices downward to capture any demand that is present, which perfectly describes the state of the competitive Class A market in Miami’s CBD today and, likely, for the next 18 to 24 months. Developers of new Class A office product and tenants with excess office space are among the motivated sellers that have resorted to concessionary pricing to generate demand, particularly in the Brickell Avenue submarket of Miami’s CBD. Bargain-shoppers have come out in legions to test the market and, in many cases, to strike noteworthy deals, sometimes well in advance of natural lease expiration dates. Despite this increased pace of leasing activity, the seeming promise of a general market recovery is premature. The sobering reality is that few of the transactions are with companies from outside of the local area. This market condition has left lessors and sublessors in Miami’s CBD with a choice to either cannibalize the market or “sit on the sidelines.” For better or worse, cannibalization has been adopted as the predominant marketing strategy for the 500,000 square feet of new Class A space and for most of the 147,000 square feet of Class A sublease space. The Four Seasons Tower and Espirito Santo Plaza are slowly being filled with current CBD tenants such as banking powerhouse HSBC, but at net rents in the low teens (accounting for free rent and capital expenses). And in a few instances, viable, “as-is” sublease deals with term are being offered at 30 percent discounts to the building’s quoted rate for direct space. Meanwhile, owners of existing properties are forecasting recovery within 24 months as the U.S. economy picks up steam and translates into business expansion — rationalizing exceptions to rent expectations to retain existing customers and preserve generally healthy occupancy levels. But optimism is, once again, tempered by the fact that when the new Class A office space is delivered by the end of the year, the current CBD Class A vacancy rate (including sublease) of 13 percent will likely take a hit of 4 percentage points to reach 17 percent if additional pre-leasing is not announced. Historical absorption trends for the 10 competitive buildings that comprise Miami’s CBD Class A sector suggest it could take 20 months or more to whittle this vacancy rate down to around 10 percent. Still, Miami retains its luster in the eyes of many investors because of its strong supply-demand fundamentals — supply is constrained due to limited land for development while demand is bolstered by Miami’s position as “Gateway to the Americas.” The city is also favored for its resiliency: Miami was one of the last major cities to admit to recession and will likely be one of the first to emerge. So while some yet-to-be-announced sublet spaces are anticipated over the next 12 months, most of the market’s largest occupiers of space — Bank of America, Dresdner Bank and Barclay’s Bank among them — have already identified excess space. And besides the two new, mixed-use projects on Brickell Avenue, additional Class A office product is not planned for delivery within the next few years. With supply coming in check, equilibrium will be restored as demand for office space — whether by organic growth or by way of newcomers to Miami — is fueled by revitalized economic conditions in the Americas and around the world. — Eric Siegrist is a leasing director/vice president with Jones Lang LaSalle

The Related Group Brings Two Luxury Residential Projects to South Florida The Moorings at Lantana is one of The Related Group’s most recent projects in South Florida. The Related Group of Florida is developing The Moorings at Lantana, a new waterfront residential village on the west side of the Intracoastal Waterway in Lantana. The project is currently under construction, with occupancy planned for early 2005. Located at 800 North Dixie Hwy., The Moorings at Lantana offers a total of 357 condominiums and 21 three-story townhouses. Residences range from one to three bedrooms, with 800 to more than 1,500 square feet, and townhouses have more than 1,650 square feet. Pre-construction prices start in the $170,000s. Waterfront vistas and green spaces will be integrated throughout. The Related Group is also developing Marina Village. Located at 743 NE First Ave. in Boynton Beach, Marina Village is just five blocks from the beach and adjacent to a 38-slip marina. It will feature 349 one-, two- and three-bedroom residences ranging from 691 to 1,646 square feet in two 15-story condominium towers and two mid-rise buildings, along with 11 townhouses facing the marina. Marina Village will break ground in November, with completion in approximately 2 years. — Julie Fritz

©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.