2023 Central Florida Industrial Summit
Recap | Tampa, Florida
On April 26th & 27th our Colliers Central Florida offices celebrated our 3rd annual Central Florida Industrial Summit (CFIS). This two-day annual event is intended to bring together our region’s largest ownership groups and most active developers for a little fun on the links, a banquet dinner overlooking both the downtown Tampa skyline and Tampa Bay, and a four-hour forum the following morning to address the hot topics of today’s industrial market. As a result of over 20 panelists graciously contributing their time and knowledge, we are pleased to share this CFIS 2023 recap report with you and hope to see you at next years’ CFIS on April 24 & 25, 2024!
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Central Florida Industrial Summit 2024
“To give a perspective of tone at the C-Suite level, the Inland
Central Florida Market ¨ § 4 ¨ § ¦ 4 ¨ § 95 ¨ § ¦ 95 ¨ § ¦ 75 ¨ § ¦ 75 Oc ala Polk
/ Plan t Cit y
o
Sara sota / Ma na te e Orla nd
Tam pa
Empire
market is now referenced as second to Florida. It’s getting noticed.”
The Central Florida Region 550M SF 4.1% 17M SF 8M SF 18M SF Total Market Size Direct Vacancy Under Construction Delivered in Q1 T-12 Absorption Market Size Comparison 900M SF 650M SF 450M SF 450M SF Atlanta Houston Inland Empire South Florida
Eric Penaranda, Link Industrial
Do you currently own property and/or land in Central Florida?
Which asset class is your investment philosophy primarily focused on within the region?
Regarding macroeconomics, where do you believe the market will be 24 months from now?
More robust expansion than what eas witnessed in 2021
Slow growth compared to today, but still positive absorption
Contraction but not catastrophic (negative absorption)
Worse than 2008/2009
Within the Central Florida region, is your firm a Buyer or Seller in the next 24 months?
More robust expansion than what was witnessed in 2021
Slowth growth compared to today, but still positive absorption
Contraction but not catastrophic (negative absorption)
Worse than 2008/2009
78% 22% Yes No
2022 Poll Results 2023 Poll Results
80% 20% Buyer Seller 62% 16% 22% Bulk +250,000 SF Light Industrial Flex 62% 16% 22% 0%
80% Yes No w 52% 48% 0% Bulk +250,000 SF Light Industrial Flex 9% 69% 22% 0%
86% 14% Buyer Seller 91% 9% 27% 70% 3% 9% 63% 28% 13% 88% 14% 86% 9% 22% 69% 52% 48% 78% 22%
Capital Market Participants
The trailing 18-month volatility in the lending environment has significantly reduced the volume of transactions across both Central Florida and the greater Southeast. The lack of data to draw conclusions from is making it ever more challenging to underwrite an opportunity. Emily referenced an article she read earlier in the week, which reflected that 2023 was on track to have fewer transactions (across all asset types) than 2009.
While there is a consensus of rents homogenizing across Central Florida, relative to product type and size, Florida does not price homogeneously and cap rates are still very dependent on the individual markets and their respective market drivers. That said, the limited data points result in a tricky valuation process and a challenge for active Buyers. Dogwood Industrial’s Chief Investment Officer, Emily Cannon, referenced their recent experience in selling a four-building Tampa Bay portfolio which yielded almost 50 bidders with a 230-bps spread between the highest and lowest offer.
Some of the geopolitical influences that are believed to potentially impact the industrial sector include: continued development resulting in oversupply, on-shoring of manufacturing, inflation at record levels, and the banks’ overexposure to the office asset class.
Insurance Costs | Lack of Data Points | 10-Year Treasury
|
Influence
Potential Headwinds Rising
Volatility
Geopolitical
From left Eric Penaranda Link Logistics | Emily Cannon Dogwood Industrial | David O’Reilly High Street Logistics | Maxwell Holter Summit Real Estate
“It appears that there is minimal asset-class distress, which combined with higher debt costs, is currently leading to a decrease in transaction volume.”
David O’Reilly, High Street Logistics Properties
Logistics Triangle: Supply Landscape
The “expandable” model worked when you could build a shell within 6-7 months. Now, with a delayed construction timeline, it’s tough to expect the occupiers to wait.
“Big-box demand has slowed as occupiers evaluate their decisions in further detail. Most companies than can take down a 1MSF facility can also afford to wait 12-18 months, whereas the smaller users don’t plan that far ahead.”
As we define the types of occupiers in the Central Florida market, our bulk occupier is defined as a Tenant between 250,000 SF and 650,000 SF and our mega-bulk occupier focuses on 651,000 SF & greater. o Albeit the sentiment is generally positive, there is a consensus that activity in the bulk and mega-bulk size ranges has slowed down dramatically during the trailing twelve months. The cause of the slow-down is largely attributed to retailers struggling to get board level approval for large capital projects, Landlords and Tenants alike being more prudent in lease negotiations causing deals to fall apart, and pessimism regarding macroeconomic outlook.
Market Trends
Tenants are willing to spend their own capital outside of the Tenant Improvement Allowance provided which ultimately provides them with additional skin in the game.
Tenant seeking 250,000 SF and greater will have a more competitive landscape of options to chose from, however doubledigit rent growth is still projected for 2023 with respect to smaller leases.
When evaluating the scope of work to complete beyond the cold dark shell, developers are forced to understand what the competition are proactively including.
Transitioning into our third panel, the concluding comment on this panel - made by Exeter’s Jeff Grabowski – left a lasting impact with the audience. Landlords need to be conscious in how aggressive they push rents because Tenants do have an option – to close their operation.
From left Jeff Grabowski EQT EXETER | Robert Gray Cabot Properties | Mike Swink Nuveen | Steve Kros Transwestern Development | Corey Price LXP
Corey Price LXP
Bulk Higher Activity for Move-in
Ready
Tenants Investing in the Premise Rent Growth Dependent on Size “It’s a TI Game”
Infill: Drive Rent Growth
The continued strong occupier demand for infill space – especially between 10,000 and 100,000 SF - is maintaining a landscape of minimal available space, strong rent growth, increased annual escalations, and minimal concessions. However, while velocity has slowed, it’s still strong – the users are just being more particular about what they’re needing.
Today’s Renewal Process
“Prologis has estimated a 10% rent growth for this year; believed to be conservative. In just Q1 alone, Prologis are reporting a 3.6% Tampa rent growth and 4.4% Orlando rent growth.”
In current conditions, we’re seeing some Tenants face upwards of 25 – 30% increases in their base rent. Those steep rent escalations are being faced primarily by those occupiers who signed 5-, 7- and 10-year leases in the 2014 – 2016 period when the “Industrial Boom” was still in its infancy. The occupiers are generally aware that market conditions have tightened, however are rarely aware to what extent. Coaching them through that renewal process is becoming increasingly more challenging.
Every Landlord wants to minimize downtime and avoid the additional costs (heaver commissions and elevated improvement dollars) that come with a Tenant vacating. That said, the panelists all supported that the maintenance and condition of the asset should not be compromised in doing so. If there are improvements that the building would require if brought back to the market, include that offering in your renewal proposal (i.e. livable office space, working bathroom fixtures and HVAC, LED light conversion, etc.).
Panelists Discussions
From left
Joey Barnes Prologis | Mitch Abbey Hove Street Properties | Forrest Askew Link Logistics | Brandon Clark The Ruthvens | Maggie Manusama High Street Logistics Properties
Joey Barnes, Prologis
“Reality is we all have responsibilities to do the best deal we can. Part of meeting that responsibility is retaining the tenant – within reason.”
Mitch Abbey, Hove Street Properties
“Shorter term is more attractive; ability to access the roll faster is attractive. If the opportunity is right – you can find value in a 1 year or 10-year deal.”
Maggie Manusama, High Street Logistics Properties
New Frontiers
A common theme across each of the firms investing in our emerging markets is a focus on the dwindling supply of available product and land, combined with the growing occupier demand, for our established infill markets. Rooker’s Cason Bufe explains that “Looking at Pasco County, we heavily considered the dynamics of the East Tampa market – strong and growing demand with the limited supply.” However, this philosophy is appearing only applicable to those emerging markets immediately abutting the established Tampa Bay submarkets (Pinellas, East Tampa, Airport); Ocala has not proven to be a benefactor of this notion. Well stated by Robert Richter, proximity to infrastructure is often the driving factor of site selection opposed to a business choosing an infill location in an established market which could be 7 or more miles from an elevated highway.
Key Takeaways
• Underwrite an additional period of 6 – 8 months downtime in these markets.
• Closely monitor the development pipeline to maximize variety in what is built.
• Design your building(s) capable of catering towards the growing “light manufacturing” sector.
What’s Happening in Ocala?
Marion County, or better known nationally as the greater Ocala area, is home to notable occupiers such as Chewy, Auto Zone, Amazon, FedEx and Dollar Tree. This developing industrial market has gain eyes of some of the country’s most active developers primarily due to I-75, one of two north-south interstates in Florida. A Florida Department of Transportation study concluded that 70% of the truck traffic in the state can be found passing through Ocala via I-75; this study alone created a supportable thesis to predict an evolving industrial market. While the supply and demand in Ocala is currently in a very Tenant favorable situation, the market should be fine given the diversity in existing offerings.
From left Cason Bufe Rooker | Matt Omundson Columnar | Robert Richter Imminent Ventures | John Barker Jr Red Rock Developments
“Secondary markets and primary arteries.”
Robert Richter, Imminent Ventures
Thank You to all Attendees and Sponsors
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