PALM BEACH, FL—The Palm Beach industrial market is showing signs of renewed growth. Vacancies are down and there may be new construction soon. What forces are moving—and holding back—the market?
GlobeSt.com caught up with Steven McCraney, president and CEO of McCraney Property Co., which has its South Florida office in West Palm Beach, to get some answers. His firm has developed, owned and managed more than 2.5 million square feet in South and Central Florida. They will deliver over 1 million square feet of new industrial development to the market this year in South and Central Florida.
GlobeSt.com: What’s the state of the Palm Beach industrial market from your perspective? Are you bullish?
McCraney: We have had three to four years of stagnant growth. Homebuilding was a huge industry in Palm Beach County. With its collapse, a number of developers and contractors went out of business, or were severely challenged.
It’s taken a while to absorb the overhang of unsold and foreclosed homes. But residential inventory is shrinking and existing home prices continue to get traction. The economy is picking up, with the unemployment rate falling to 7.5% in August from 9.4% a year earlier. As we have always said for Palm Beach County, the recession began with housing—it will end with housing.
GlobeSt.com: How is the upturn affecting the market?
McCraney: Inventory is shrinking quickly. The total vacancy rate fell 190 basis points in the second quarter from the same time last year, according to CBRE. The vacancy rate on class A space is down to 5 to 6 percentage points, which is stabilizing rents.
Fee rent is virtually out of the market. Class A dock high product is scarce with few alternatives over 20,000 square feet. Although pricing for space which houses these users is growing, the direct asking rental rate averaged $5.75 to $6.50 per square foot in the second quarter, an increase of 21 cents from the previous year, according to Cushman & Wakefield.
The flex space service sector of the market was significantly impacted at the onset of the recession has picked up significant momentum. As vacancy is quickly dissipating, rents are growing at a moderate pace.
GlobeSt.com: What businesses are taking space?
McCraney: We’re seeing demand from construction companies due to development of multifamily properties, home renovations and some new home construction. Builders and subcontractors realize they realized that they need room for growth. Other industries are growing, too. Three medical devices companies have doubled in size in Riviera Beach. Solar Tech took 75,000 square feet in the same city.