Terranova TRENDS SpringSummer 2018

Page 1

spring/summer2018

801 arthur godfrey road suite 600 miami beach, fl 33140

By Andrea Speedy

Over the past five years, industrial real estate has been turning in annual returns approximately 1.3% higher than the entire real estate industry average. Typically, the historical norm for industrial properties stood at 10% annual returns on an unleveraged basis… but recent performance is now closer to 12.8%. While this has definitely caught the eye of capital markets looking to diversify investment portfolios with real estate that has been delivering above office, retail, and apartments – the shift reveals an evolution taking place in the overall commercial real estate market. SUPPLY AND DEMAND

Big changes are already underway in traditional retail development – from building more immersive store environments, to innovative mixed-use properties, to adaptive re-use and re-development of underperforming spaces. On the other side of the spectrum, the industrial property inventory has been unable to keep up with ravenous demand from e-commerce uses, driving up the cost of industrial space. In South Florida in particular, this supplydemand scenario is heightened by a lack of available large parcels of land suitable for new industrial development. Since 2008, residential and mixeduse has driven much of the development landscape in Miami-Dade County, with commercial properties joining the development cycle a few years later.

Changing dynamics on the demand side of the equation are also shaping a new future for industrial real estate – not least of which is the ever-increasing business related to e-commerce fulfillment. As more and more businesses look to serve digital consumers with prompt (or even same-day) delivery of everything from apparel to electronics to groceries, industrial warehousing space has become a highly sought-after commodity. A recent Terranova joint acquisition in Doral was selected for precisely this reason. “Our new industrial property in Doral has unbeatable proximity to the Palmetto Expressway (SR-826) as well as Miami International Airport,” Stephen Bittel, Chairman of Terranova. “That is a location that can serve nearly any type of tenant, which allows us to focus on maximizing the utility and functionality of the space itself.”

The rise of workshops and small factories have also been influencing the demand for industrial space, particularly as cottage industries in food, beverage, and home design goods outgrow the capacity of home-based or other small manufacturing sites. In a 2016 issue of TRENDS, we highlighted the emergence of craft breweries, many of which like Concrete Beach and Wynwood Brewing are now catching national attention. At the heart of these businesses are an industrial property that allows for manufacturing or production at an economy of scale that drives profitability. Without a location that is both zoned for industrial use and has enough size to accommodate the operation, these businesses must spread resources over multiple properties or scale back production to less profitable levels.


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