Miami Industrial Vacancies Reach Decade-Low, Out-of-State Investors Flood Multifamily Sector

Office market faces uncertain future amid broader challenges, while local retail sector continues to outperform rest of nation

MIAMI, FL (July 20, 2022) – South Florida remains a hot target for commercial real estate investors from all over the nation, but supply constraints are a major challenge for the region’s key sectors according to Lee & Associates South Florida’s Q2 2022 market report. The local industrial market continues to reach new milestones, with Miami-Dade County recording a decade-low vacancy rate in the second quarter of 2022.

The tri-county area of South Florida closed the second quarter of 2022 with a scant 2.7% industrial vacancy rate, which was a full 1.3% below the region’s vacancy rate a year earlier. Miami-Dade’s vacancy rate fell to 2.5%, while Broward County’s stayed put at 3.5%. South Florida average industrial rents (triple-net) surged from $10.67 per square foot in the second quarter of 2021 to $12.59 per square foot in the second quarter of 2022.

“In Miami, demand has consistently outpaced inventory throughout the industrial market,” Lee & Associates South Florida Principal William Domsky said. “Owners have capitalized on the market conditions and are raising rents at a brisk pace. Miami ranks as one of the most expensive industrial markets on the East Coast due to the lack of land suitable for large-scale industrial development.”

In the multifamily sector, feverish investment appetite is driving up sale prices. Out-of-state investors are leading the push, as roughly 80% of acquisitions were made by non-Florida buyers over the past 12 months. South Florida multifamily rents skyrocketed year-over-year in the second quarter of 2022, from $1,786 per month to $2,048.

“Prices are continuing to rise and average cap rates have compressed this quarter,” Lee & Associates Vice President Lynae Solomon said. “Now that prices have increased, some local investors are holding off from adding more properties to their portfolio due to the uncertainty of the future of the economy.”

Geopolitics, inflation and rising interest rates are creating broader uncertainty in the office market, but South Florida’s office sector continues to see declining vacancies supported by robust job growth. The region’s vacancy rate dropped from 10% to 9.1% year-over-year. Average asking rents jumped from $31.73 per square foot NNN in the second quarter of 2021 to $35.03.

“Florida continues to be at the forefront of how the office market recovers from the last two years,” Lee & Associates South Florida Senior Vice President Matthew Katzen said. “The coworking business continues to see strong growth, and law firms are actively leasing new Miami offices – particularly new-to-market global and national firms – or expanding to Palm Beach County. The investment sentiment has improved, but not without a sense of caution going forward.”

The retail sector is benefitting from rent growth and declining vacancies. Average asking rents rose year-over-year from $29.90 per square foot NNN to $33.81. The vacancy rate declined from 4.3% to 3.4% during that span.

“Despite inflation, the South Florida retail market continues to outpace the rest of the country in rent growth and positive absorption,” Lee & Associates South Florida Principal Victor Pastor said. “The threat of a recession is fueling greater demand for necessity-based shopping centers. Palm Beach County is experiencing a record influx of residents, which is attracting retailer expansion from the more crowded Miami-Dade market.”