1. Industrial Guide 2011
Daily Business Review | May 16, 2011
Industrial market shows early signs of recovery
Susan Postlewaite
KTR Capital had to jump through hoops to snag two new
national industrial tenants.
But in the end its Seneca Industrial Park in Pembroke Park
was filled to 100 percent occupancy — a nice coup in the
midst of a soft market barely breaking into single digits in
vacancy.
"Everyone wanted hh Gregg," said Rick Etner, one of the
Cushman & Wakefield brokers who represented KTR in
the deal to sign the growing appliance and home-
electronics retailer to a three-year, 66,000-square-foot
lease for its regional distribution headquarters. Based in
Indianapolis, hh Gregg plans to open about a half-dozen
stores in South Florida.
The company was close to signing at Seneca Park shortly after it launched a search for space at the end of
2010, he said, when "the guys [commercial brokers] in West Dade put a full court press on." KTR won over the
company in February, in part because the property is in an area popular with companies that want access to
Broward and Miami-Dade.
The lease was valued at $1.6 million.
At the same time, Cushman brokers brought in another $1.8 million seven-year lease at Seneca for 23,000
square feet for Gemaire Distributors, which distributes cooling systems in many parts of Florida and nationally
and was moving from nearby space.
"They wanted to be in that ZIP code. They wouldn’t go north or south," Etner said. "They wanted van-high
loading; they wanted doors; we gave them seven doors. They didn’t want 21,000 square feet, and 25,000 was
too much. We literally had to split a bay. "
The two high-profile transactions are early signs the South Florida’s industrial market is reviving, but the region’s
landlords are still being pressed to hand out concessions to lure tenants or retain others who think they can get
better deals around the corner.
"There’s been a lot of musical chairs in the last three years, and there continues to be a lot of tenants moving
from one space to another space," said Eric Swanson, executive vice president of Flagler Development in
Miami-Dade.
Industrial Guide 2011
Daily Business Review | May 16, 2011

2. Still, many brokers say the hh Gregg lease and others like it are positive signs.
"We think the market is coming back in a big way. One of the indicators I look at is retail. Retail is first to suffer
and last to come back, and hh Gregg is a retail client," Etner said.
When will the turnaround gain traction?
"I’ve seen this a couple times before, and it’s like it happens overnight," said Ed Mitchell, regional senior vice
president of Duke Realty, which recently completed the $450 million purchase of Premium Commercial Realty’s
South Florida portfolio, including 51 industrial properties in Palm Beach and Broward counties.
"The tenant decides they want to be in a certain market, they go in and [discover] they’re kind of getting locked
out. It starts rolling that way, and it starts happening submarket by submarket," Mitchell said.
Mitchell said the improvement is starting in southeast Broward, and "in Palm Beach County we are certainly
seeing the northern part of the county tightening up and Boca is definitely changing."
He expects leasing rates to rise in certain submarkets. "There’s not a lot of opportunity. We think things are
tightening up quickly, and we are seeing rates rising," he said.
Along with leasing rates, the demand for quality space is rising, as well, Mitchell said.
"If you are in Pompano and looking for 50,000 to 60,000 square footage, there are only two or three
opportunities. If you need big space, in all of Palm Beach County there’s none available. A tenant over 70,000
square feet will have trouble," he said.
Christopher Thompson, an industrial broker at Cushman & Wakefield in West Palm Beach, also sees
improvement.
"I think we’re probably in another quarter in a tenant’s
market. We’re starting to make the change over. It’s
definitely not the tenant’s market it was in the third quarter
of last year. We’re starting to see that when a tenant looks
at multiple spaces and they go back to see one or two, one
of the two is not there anymore."
Despite the positive signs, rents in most areas are still
concession driven, tenant-improvement costs are
increasing, leasing rates are flat and few buildings are
selling.
Rental rates decreased in all three counties, according to
figures from CoStar. Many Class A industrial landlords
continued to offer concessions in the first quarter of 2011.
Industrial Guide 2011
Daily Business Review | May 16, 2011

3. Over the past year, tenants took advantage of the
weak market to move to more space in large parks,
leaving Class B and C properties to suffer.
The overall volume of leasing improved in the first
quarter, and the region’s vacancy rates dropped in
Palm Beach County and Miami-Dade but edged up
in Broward.
The Miami-Dade industrial market benefits from the
role it plays in international trade and its ties to
South America.
The county’s vacancy rate dropped to 8.5 percent at the end of the first quarter, down from 10 percent a year
ago, according to CoStar.
Leasing Activity
AMB Property landed Miami-Dade’s largest industrial lease in the first quarter when Aeropost International
Services signed a five-year-plus deal for 179,348 square feet at Blue Lagoon Business Park near Miami
International Airport. The lease is valued at more than $10 million. Aeropost took over space vacated by DHL
Global Forwarding.
Ed Redlich, vice president of ComReal Miami, predicts that, based on deals in the pipeline, Miami-Dade’s
vacancy rate will hit 8 percent by the end of the year.
"Two years ago, in the first quarter of 2009, there were no transactions — not one — over 25,000 square feet. In
the last six months there have been over 25 transactions over 25,000 square feet."
Flagler Development’s Swanson noted cargo volume is increasing at Miami International Airport and the two
seaports, the Port of Miami and Port Everglades in Broward County.
"All that leads to a more active industrial market. Companies are a little more optimistic. The underlying basis,
however, is there is still a lot of people just moving from one place to another place and the vacancy in the Class
B properties has an impact on the rental rates."
Broward County’s vacancy rate at the end of the first quarter was at 9.5 percent after peaking at about 10
percent in the fourth quarter of 2009, according to CoStar. Brokers say there is a wide variation from submarket
to submarket and quality of building.
"There is a lot of leasing in Class A, but the Class B and C properties are still hurting in occupancy and rental
rates," said Ryan Nee, associate in the Fort Lauderdale office of Marcus & Millichap. "The southeast parks close
to [Port Everglades] have a lot of lower vacancy rates, and any place that has a distribution capacity has higher
occupancy rates as well. The farther north you get, the more vacancy starts to creep in."
Industrial Guide 2011
Daily Business Review | May 16, 2011

4. Palm Beach County’s vacancy rate declined from a high of 12 percent in mid-2009 to 10.1 percent at the end of
the first quarter of 2011. That’s still well above the 3 percent rate at the end of 2005.
The biggest lease in the first quarter of 2011 was JKG Group’s 50,000-square-foot deal at 160 Yamato Road, in
Boca Raton.
"We feel rates have bottomed out and stabilized," Cushman’s Thompson said of the Palm Beach County market.
"As absorption continues to happen further into 2011 and into 2012 we’ll start to see rate increases as well."
Thompson added that "we have started to see the free rent go away or be minimized. Last year, it was one
month of free rent for every year you signed up, now we’re probably seeing on a five-year deal it’s one or two
months."
Tough Sales Outlook
Industrial property sales continue to be hampered by limited access to financing and fears by cautious corporate
executives that the economy isn’t fully recovered.
"Sales velocity has picked up but in terms of pricing we’re stagnant," said Nee of Marcus & Millichap. "Ninety
percent of the sales are still owner-user sales, where someone using the facility comes in and buys it. Financing
is pretty loose for owner users, but for investor users, it’s tight."
CoStar reported 36 industrial sales in Broward worth $190 million in 2010, up from 26 deals valued at $66 million
in 2009. The largest transactions involved institutional buyers. They included the $54 million sale of the Weston
Business Center in Weston, which was acquired by RREEF America, the U.S. real estate investment
management arm of Deutsche Bank; and the $31 million sale in August of a 401,650-square-foot building in
Sawgrass International Corporate Park to Cobalt Industrial REIT II, an affiliate of Irving, Texas-base Cobalt
Capital Partners.
No significant sales have taken place this year.
In Miami-Dade, there were 79 sales in 2010 worth a combined $212 million, compared with 54 sales worth $153
million in 2009, according to CoStar. The biggest deal this year was the $10.35 million sale of a building at 6100
NW 74th Ave., in Miami, to TA Associates Realty in late January.
Palm Beach County has shown the most progress since the real estate collapse. The county saw 20 industrial
deals worth $57 million in 2010, compared with seven valued at $13 million a year earlier, according to CoStar.
But 2011 has started slowly. The top deal is the $2.65 million sale of the Southern Fresh Foods building in
Riviera Beach to Italian Rose Garlic Products in March. Redlich, at ComReal, said the continued buying by big
landlords like Duke Realty is "immensely significant" because it shows institutions are making a commitment to
South Florida.
"They are doing their numbers, and they’re betting rates are going to go up. In the last six months they are being
proven right. It may be two, three, four, five years; we’ll have to wait and see," he said.
Industrial Guide 2011
Daily Business Review | May 16, 2011