Writer: Max Crampton-Thomas
2 min read September 2021 — PS Business Parks is a real estate investment trust that acquires, develops, owns, and operates commercial properties, predominantly multi-tenant industrial, industrial flex and low-rise suburban office. In an interview with Invest:, Rich Guertin, regional vice president, discusses the challenges of land scarcity, the need for innovative solutions for industrial parks, factors to fix the supply chain, price sustainability and the perks of the city of Doral.
What is your overview of the region’s market, its challenges and opportunities?
Miami-Dade has 254 million square feet of industrial space. Doral is an important player in the industrial segment, encompassing 47 million square feet. Over the last two years, 14 million square feet were built and have been fully absorbed into the market. With south Florida having land constraints for new product, strong growth in e-commerce and high domestic consumption demand, the industrial market continues to remain bullish. Further opportunities will heighten demand with the increase of population growth and the resurgence of South American trade with its recovery projected in 2022. Additionally, with the supply chain issues and lag time of freight entering the US from Asia, businesses are stacking up on their inventory, leading to the biggest growth of the industrial sector in the past 30 years.
What are the challenges for industrial parks to accommodate the high demand considering land scarcity?
Developers are becoming more creative and for the first time in South Florida, vertical multi-tenant buildings are being developed in addition to the increased ceiling heights that are becoming a norm for more efficient racking of goods. I foresee the highest and best use of outdated or obsolete real estate throughout the county going to both industrial and multifamily, which currently are the hottest real estate sectors. Growth will continue to expand in Florida, as it has over the past few years, moving north toward Orlando and along the Eastern Seaboard where land is cheaper but with strong population demand. Right now, Miami is in a strong position, with Miami International Airport positioned No. 1 in freight in the United States and 12th in the world and both ports having record trade.
What is the landscape for TEUs related to industrial demand?
TEUs, or 20-equivalent units, are ship containers that, due to high demand, have reached the highest amount of use ever recorded. With the increased demand, there is a global shipping container shortage putting pressure on already high freight charges. As freight charges continue to spike, suppliers are increasing inventory and filling warehouses up and incrementing industrial demand. From all indications, ocean freight won’t normalize and it is reported that the existing supply challenges will be present through 2022.
What factors are necessary to right-size the supply chain?
I believe there is going to be more diversity in manufacturing in the future, from which Mexico, Canada and, hopefully, the rest of Latin America will benefit. Despite Asia being the main driver right now, I think manufacturing will become a huge component in other areas. Unfortunately, the changes needed in manufacturing will not be seen in the near future.
Is the price increase for leased properties sustainable?
In the short term, with consumer demand strong and limited supply of industrial space in the market, renters will see a premium on warehouse rents. I don’t see rents leveling off at this point because of the absorption of new product at a rapid rate and continued escalation of rent growth seen in the market. In 2022, both Miami Dade and the Airport West market enjoyed an 11% rent growth. The industrial sector will continue growing with the increased demand in e-commerce.
Have there been any demographic changes with regard to where businesses are coming from?
Over the past few years, 70% of our customers dealt with South America on trade. Being close to the airport and the port of Miami, it was certainly understandable. Recently, we’ve seen a shift toward domestic consumption with a lot of small tenant start-ups distributing products throughout South Florida. Those remaining customers that deal with South America have diversified and it appears that this strategy has benefited most companies on risk and reward while South America recovers
What are the key aspects that make Doral so conducive for industrial space?
Doral was planned very well, which makes it a haven for business. The southern area is zoned for industrial use and it’s strategically placed near the airport and between some major highways, such as the Turnpike, Palmetto and the Dolphin Expressway, allowing our customers easy access to both Port Miami and Port Everglades.
What are the unique aspects of PS Business Park in terms of the marketplace?
We have major clients like any other landlords. However, when you look at a company like Amazon, 53% of its revenue is from small third-party businesses and we cater to them. We specialize in small, customer suites to accommodate “mom-and-pop” businesses, which are the main economic drivers of not only Miami but the nation. We are a company that listens to our clients and the business environment. Our goal is to provide clean, safe warehouses that a company can operate in and grow their business. Since we have so much square footage in South Florida, we can accommodate a business on their growth needs during their lease term which is a very favorable attribute for a business that needs flexibility.
What would you highlight about the city of Doral?
It’s a very business-friendly environment; not often do you work with municipalities where you can pick up the phone and talk to one of the directors or one of the professionals there. Ultimately, they want to do the right thing but are also sensitive to the business climate.
What is your near-term outlook?
Industrial real estate demand will continue to be strong in all of South Florida. With our parks that cater to the small customer, the demand in small-tenant occupancy will be forecasted to be at all time highs with the scarcity of this product in the market. We are positioned very well. We have about 350 spaces at the Miami International Commerce Center (MICC) that can assist a business to grow and expand in their space. The occupancy last quarter was an average of 97% and we look to maintain this trend throughout the remaining months of 2021 and 2022.
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