Leasing activity for logistics space in South Florida has continued to slow, with just over 3 million square feet leased so far in the second quarter of 2023. The total amount of leased industrial space has continued to drop since the fourth quarter of 2022, when just over 4.5 million square feet were leased, followed by just over 4 million square feet leased in the first quarter of 2023.

These declining leasing totals for the past two quarters are close to 30% below the five-year average for square feet leased and around 50% below the peak-leasing levels of over 8.8 million square feet reached in the third quarter of 2021. This slowdown in leasing activity is occurring at the same time as industrial construction activity hits an all-time high in South Florida, with over 12 million square feet of logistics space currently underway as of the first quarter of 2023.

Most of the new logistics space coming to market, over 86%, is concentrated in properties that measure more than 100,000 square feet, which is increasing availability for these larger properties. Space availability for properties between 100,000 to 250,000 square feet have risen from lows of around 8.8% in early 2022 to over 11.4% as of the first quarter of 2023. Properties with more than 250,000 square feet have seen the sharpest rise in availability from lows of 1.7% in early 2022 to 10.4% as of the first quarter of 2023. Smaller properties with less than 100,000 square feet have seen the greatest stability, with space availability rising slightly to just over 4.1% in the first quarter of 2023.

The increase in availability has been driven by the combination of the large quantity of new space coming to market coupled with the aforementioned slowdown in leasing activity. Still, the main driver of this softening in demand for larger assets is the sheer amount of new space coming to market. Over 9.8 million square feet or 38% of available logistics space in South Florida is composed of properties built in 2023 or those currently under construction. While 7.3 million square feet, or 29% is concentrated in older/smaller properties built before 2010 and with less than 100,000 square feet.

Over 66% of available space in South Florida is concentrated in properties of 100,000 square feet or more, and of those properties, those built in 2023 or currently under construction account for over 52% of space availability. Supply risk remains the highest for assets in the middle range, those measuring between 100,000 to 250,000 square feet, as these make up over 46% of available space in South Florida and over 51% of space availability for properties built in 2023 and are currently under construction. Larger properties with more than 250,000 square feet make up around 19% of space availability in South Florida, and around 39% for properties built in 2023 and currently under construction.

Despite the largest properties, those with more than 250,000 square feet, representing the smallest share of space availability, large logistics occupiers have slowed their real estate expansions across the country since the second half of 2022. South Florida has not been immune to this trend with a drop in tenants looking for space larger than 50,000 square feet, specifically in Miami and Fort Lauderdale. Given these leasing trends, an elevated construction pipeline of large assets and a slowing economy, new logistics properties built in 2023 and currently under construction will likely take longer to lease up.

CoStar estimates that the number of quarters that it will take for properties with more than 100,000 square feet in South Florida to reach stabilization will jump to over 10 quarters. This will mark a return to similar leasing trends faced by industrial properties built in 2018 and 2019 which took between 10 and 11 quarters to reach stabilization, a significant softening from the average of five quarters that large industrial properties built in 2022 took to lease up.

That said, the South Florida logistics market remains relatively healthy with tight vacancies and some of the highest average rent gains across the country. The near-term rise in logistics space availability is expected to result in slower rent growth, although annual gains in South Florida are expected to remain above the U.S. average over the next five years, averaging around 7.6% above the 5.3% expected for the U.S.