S. Florida Commercial R.E. Scarce, Costly

Commercial and industrial real estate remains scarce across South Florida, resulting in higher rental rates and giving owners even more leverage than they have previously enjoyed. A lack of new office construction in Palm Beach and Broward counties is keeping vacancy rates near 12 percent. Rather than renting in this tight market, some small business owners are buying office condominiums, according to the Ft. Lauderdale Sun-Sentinel.

“Rental rates are increasing in both counties and are expected to increase. I think people who have historically signed three- to five-year leases will want to lock into more long-term deals. Rates are only going to go up,” said Paul Marko, vice president of CB Richard Ellis in Fort Lauderdale.

Marko and colleague Harry Tangalakis are scheduled to discuss their ‘06 office and industrial outlooks Thursday at the 14th annual Institute of Real Estate Management Economic Forecast Breakfast at the Renaissance Boca Raton Hotel. Tangalakis has said that Broward’s industrial market, which consists of 97 million square feet, is 4.5 percent vacant. The 48 million-square-foot industrial market in Palm Beach County is 2.5 percent vacant.

“I’ve been doing this for 24 years, and I’ve never seen the market as tight as it is today,” Tangalakis said. “[Commercial real estate] really is a seller’s market. Landlords are not giving any concessions at all. It’s a take-it-or-leave-it scenario right now.”

In addition, industrial land prices have escalated to $10 to $12 a square foot in Palm Beach and Broward counties, causing some firms to look to less-expensive Orlando and Jacksonville real estate.

Lifestyle or downtown centers are dominating development in Broward County, particularly west of State Road 7, Crossman said. Investors think fast-growing west Broward will outperform most other facets of South Florida real estate development. Western Palm Beach County also has a growing retail landscape.

The Southern Palm Crossing development in Royal Palm Beach will have 348,000 square feet of shops and restaurants, including a Costco, Marshalls, Home Goods and Stein Mart. Each will be the first stores in the immediate area for the respective retailers. More than a few South Florida shopping centers these days are fetching top dollar, commanding rates more commonly seen in California.

What’s driving all this? Demand. Many landlords across the nation have not been enjoying the real estate boom, but that is changing now as rental markets are heating up. It’s probably no surprise to many in South Florida that office space is scarce in the area. Low Florida home loan rates have fueled residential real estate demand so much that a serious affordability crunch has resulted.