Lack of Industrial Stymies Growth in Palm Beach

PALM BEACH, FL—Is the Palm Beach County industrial market ripe for construction? And if so, why aren't we seeing new industrial projects rise from the dirt there as we do in Miami?

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 his take on the construction opportunities in Palm Beach County's industrial market. We also asked him what relatively limited supply means for tenants. (Check out part one of our exclusive interview if you missed it.)

GlobeSt.com: Is there room for local companies to grow and new ones enter the market?

McCraney: No. There's some dock-high space is in Boynton Beach. In Wellington, a developer put up 200,000 square feet for a build-to-suit client and on spec. Of that only 30,000 square feet is left. A company that wants to be in Riviera Beach, Jupiter, or Palm Beach Gardens will find just a few small spaces in research and industrial parks.  

GlobeSt.com: Does that make the market ripe for new construction?

McCraney: Definitely. I am planning to develop 150,000 square feet of space on our land in Vista Center, and Turnpike Business Park in West Palm Beach. We need more speculative projects like that to come out of ground.  

In the Orlando market we presently have under construction with 250,000 square feet of industrial dock high product and have just acquired an additional 38 acres to develop 700,000 square feet. The lack of construction over the past five years coupled with the pent-up demand for quality space is beginning to drive built to suit activity with speculative development on the horizon.    

GlobeSt.com: So why aren't new industrial properties springing up across Palm Beach County?

McCraney: There are several reasons. One, lenders are very conservative. They want the developer to have a 35% equity stake and to see pre-leasing. The latter creates a Catch-22 because the typical tenant here leases 5,000 to 20,000 square feet.

A company that size wants to see a property come out of the ground before committing. Developers need some give from both lenders and tenants. Also, multifamily developers are buying properties that are suited for industrial development. Lenders will put their money behind those projects, but are less enthusiastic about industrial construction.

GlobeSt.com: With relatively little new supply, what's likely to happen to the market?

McCraney: Developers and real estate owners are seeking recovery as rents fell to an all-time low over the past five years. This is a demand driven business. Additional speculative product would create downward pressure on rents as availability increases.

Much like the scenario at the bottom of the recession, as the significant overhang of vacant existing product created a huge void in the market forcing landlords to meet ever dwindling lease rate. It was clearly a buyers' market.  

The pressure would come off of rate growth if several larger projects were started. They would keep operating and construction costs in line. In the meantime, expenses will remain higher in Palm Beach County than other parts of the state. For example, common area maintenance, or CAM, averages $3 to $4 per square foot.