Lee & Associates South Florida Q4 Report: Vacancies Climb in Industrial and Multifamily Sectors

Local office and retail markets hold steady amid broader real estate and economic headwinds...

MIAMI, FL (January 30, 2023) – South Florida’s industrial and multifamily markets saw notable year-over-year increases in vacancies, according to Lee & Associates South Florida’s Q4 2023 market report. The region’s office and retail sectors managed to keep vacancies in check, with the office market bucking national trends due to South Florida’s unique appeal from corporate tenants.

Industrial

The tri-county area of South Florida closed the fourth quarter of 2023 with a 3.1% industrial vacancy rate, up from 2.3% a year earlier. The average asking rent surged year-over-year from $14.32 per square foot triple-net (NNN) to $17.15 per square foot.

"In Q4 2023, South Florida's industrial sector demonstrated significant resilience and growth. Broward County's lease rates remained robust, particularly for tenants seeking spaces over 40,000 sf, with a notable average NNN asking rate of $17.15 per square foot annually," Lee & Associates Vice President Christian Baena said. "This period marked a continued trend of 'flight to quality,' as older properties maintained their value without significant discounts. Importantly, operating costs stabilized, benefiting from the larger property owners' ability to distribute insurance costs over extensive policies, thus maintaining higher lease rates. Despite slight post-COVID valuation adjustments, sellers' optimism persists, unaffected by looming recession threats. Overall, the market shows a positive trajectory, underpinned by a healthy balance of limited supply and strong demand, validating Florida's unique position compared to other U.S. markets.

Multifamily

The local multifamily sector recorded a year-over-year rise in vacancies in Q4 of 2023, from 4.4% to 5.6%. Asking rents inched up year-over-year from $2,109/month to $2,128/month.

"Despite a recent slowdown in demand growth, South Florida's multifamily housing market remains formidable," Lee & Associates Principal Luisa Pena said. "Challenges in affordability and an extensive pipeline of 49,000 new apartment units under construction have softened market absorption. This surge in supply has led to a 1.2% rise in vacancy rates over the past 12 months, prompting developers to offer rent concessions. However, the demand for apartments remains strong due to a robust labor market and the ongoing issue of affordable housing. Rents are stabilizing and growing at a more normalized pace, although Miami continues to rank as one of the most expensive metropolitan markets. Investor interest remains high, yet the market is experiencing increasing cap rates and evolving market dynamics"

Office

South Florida’s office sector was expected to see some softening due to the national slowdown, but office vacancies declined slightly year-over-year in Q4, from 8.3% to 8.2%. The average asking rent rose from $36.04 per square foot NNN to $37.12 in the same span.

“Miami office Market continues its steady push into 2024 with some of the best office spaces commanding rents upward of $100 per square foot," Lee & Associates South Florida Senior Vice President Matthew Katzen said. "These high rents and low vacancy rates continue to be strongest around the urban core of Brickell. Brickell has a low vacancy rate of 7% compared to Downtown Miami which is hovering at 20%. South Florida’s market average rents continued to increase to $37.12 S/F with 4th quarter of 2023 vacancy rates staying steady at 8.2%. Higher vacancies and lower rents in the suburbs by as much as 36% on average. High interest rates and other expenses including insurance and operating expense increases have contributed to a decline in office sales for 2023 (430 million) compared to 2022 (1.2 billion)."