MIAMI-Despite the prophesied doom and gloom, 2010 offered newhope for commercial and industrial real estate alike. Florida’smarket appears to have hit a bottom. Though the industry may see aplateau in the quarters ahead, there are hot pockets of growthacross the state. The key words are ‘cautious optimism.’ The worstappears to be behind us.

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What will 2011 bring for the industrial sector? How will hittingbottom help the market? Is South Florida set to outperform othermarkets in the state as a recover ensues? GlobeSt.com caught upwith Brett Harris, president and COO of the Adler Group, theMiami-based leasing, property management, acquisitions, investment,development and construction firm, to discuss these and otherissues.

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LeClaire: What do you expect in the industrialsector in 2011?

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Harris: Renewed industrial sector activity hasled much of the 2010 recovery movement, and will continue to be atthe forefront of market recovery in 2011. Retailers anddistributors are in need of warehouses to accommodate risingproduct inventories as consumers tip toe their way back tobig-ticket spending, as evidenced by Black Fridayexpectations.

For the first time in nearly two years, the gap is narrowingbetween the demand for leased space and supply of space available,thereby lowering vacancy rates for industrial properties, whilestrengthening the negotiating position of property owners andlandlords. Adler leased more than 300,000 square feet of commercialspace within its own investment portfolio in 2010. We also sawgreater tenant renewal ratios, as well as increased rentalrates.

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LeClaire: How will hitting bottom help themarket?

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Harris: Leasing agents and representatives wereplagued by the inability to hit or recognize “true bottom.” Manyadopted a “Wild West” attitude to land new tenants, or keep currentones from moving. The inability to negotiate from a position ofstrength handcuffed the industry as a whole. This greaterunderstanding of where the bottom finally is has had a stabilizingeffect for brokers and established a benchmark for negotiatingdeals as rental rates begin to increase and vacancies fill withgreater velocity than before. In 2010, Adler properties’ occupancyrates were in the mid-80%, and are expected to increase to levelsnearing the 90th percentile in 2011.

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LeClaire: Do you believe South Florida will recoverbefore other markets?

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Harris: South Florida’s commercial real estatemarket—particularly the Miami Airport West submarket—should reboundsignificantly faster than others in the state. Expansion of thePanama Canal has prompted major improvements at key logisticsfacilities across the state. The Port of Miami, PortEverglades and Miami International Airport’s cargo facilities arecurrently undergoing expansion to attract more global distributionroutes through this region, consequently driving demand for morewarehouses and distribution centers to hold the influx of products.The container terminal expansion at Port of Tampa should have asimilar positive effect on Tampa’s industrial real estate market.But Orlando’s highly service-oriented marketplace will continuehindering commercial real estate market recovery there.

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LeClaire: What trends do you expect on the leasingfront in Florida?

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Harris: Tenants are regaining a comfort levelwith the state of their businesses that is helping reestablishing ademand and desire for long-term occupancy. Brokers witnessed threedistinct stages of tenant behavior when it came to leasing in thenew economy.

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Stage one was fear and worry—concern that their business may notbe around in three months prevented tenants from consideringmulti-year renewal options. Stage two was cockiness—the glut ofavailable space and never-before-seen deals put tenants in aposition of strength to “squeeze” landlords into concessions, ormake a move to greener pastures, without thought to the future.

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Stage three is the bird-in the-hand mentality. With theirbusinesses weathering the economic downturn, rental rates graduallyrising, and space at premier commercial properties starting to begobbled up, tenants are now more apt to make longer leasecommitments for quality office, industrial and flex-space beforethe negotiating pendulum swings back in favor of property ownersand landlords.

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