Private equity group Rockpoint acquired over 87 acres of developable land in Pompano Beach this November in one of the largest land sales of the past few years.
The Boston-based group paid Cordish Cos. $180 million, or over $2 million per acre, for the site, which sits within a planned 223-acre development.
The deal signals persistent interest in developing industrial space in South Florida as the region continues to see some of the highest rent gains in the country, with annual Logistics rent growth of over 11%, outpacing national gains of 7% through the current quarter.
Over 10 million square feet is underway in properties larger than 100,000 square feet, with an additional 16.7 million square feet in proposed properties. The activity by developers continues to hum, along with four major trades of land for industrial development in the past two years, including Rockpoint’s recent acquisition.
These land deals have traded for over $2 million per acre on average and have been purchased by major national players, including Terreno Realty, Ares Industrial and Blackstone’s Link Industrial, pointing to a continued bet by institutional investors in the South Florida Industrial story.
Two of those trades have involved land parcels in the western suburb of Hialeah, while another is closer to the East Coast, in Miami Gardens. An additional 6.6 million square feet of space are expected to be added by these developments, with over 620,000 square feet already in place or underway.
Developers continue to bet on South Florida’s strong demographic and business growth, dense population and barriers to new development. Still, the region has not been immune to the broader slowdown in industrial space demand, as rent gains have slowed from a recent peak of over 19%, while space availability has increased to over 7% from lows in the mid-4% range in 2022. The main driver of this increase in space availability has been the slowdown in demand from large tenants like Amazon, while new large warehouse completions have been on the rise.
With over 6.8 million square feet of Logistics space expected to be completed in South Florida in 2024 and an additional 2.5 million square feet in 2025, additional competition is incoming, particularly for large tenant spaces.
Despite this near-term rise in new space availability, the location of Rockpoint’s latest acquisition remains attractive as it lays East of Florida’s turnpike, an area which has few land parcels available and has therefore seen a minor share of new industrial development.
In fact, over the past five years, the area east of Florida’s Turnpike has seen around 1.6 million square feet in average annual under construction square footage relative to an average of over 6.9 million square feet west of the Turnpike. This eastern area also typically sees a rent premium relative to the west of between 6% to 8% higher due to its proximity to dense, high-income neighborhoods along the coast as well as infrastructure such as ports and cargo airports.
The development is expected to break ground in May 2024, according to Rockpoint’s press release, and will sit within a larger mixed-use project being developed by The Cordish Cos. and Caesars Entertainment. Rockpoint is now expected to add 1.5 million square feet of in-fill industrial space to the area after Cordish and Ceasars decided to reduce the amount of office space that would be included.
Although it is still unknown what types of tenants the developer will target as it advances on the project through three planned phases, the in-fill nature of the site will likely attract a wide array of tenants looking to reduce transportation costs by being located closer to end-consumers.
Additionally, tenant demand going forward will likely originate in the smaller space size segment as over 80% of new leases have been concentrated in spaces of less than 20,000 square feet in South Florida over the past three years.
Steady leasing from tenants with smaller footprint requirements has driven developers to increasingly think about providing more flexibility in the spaces they offer, developing suites that can be demised to smaller sizes but can also serve larger users when needed. Going forward, this increased flexibility will allow properties to cater to a wider range of tenants as demand for different size ranges continues to fluctuate.
