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(Crystal Proenza is associate editor of Real Estate Florida.)

[IMGCAP(1)]MIAMI-Despite tri-county rising vacancies and dipping rental rates, the South Florida market is still one of the strongest in the nation, say local brokers. However there is no doubt the residential crisis has spilled into the commercial real estate sector, causing many homebuilding-related companies to downsize or close, leaving a noticeable stain of negative absorption.

South Florida is experiencing an overall slowdown and softening, brokers agree. According to Cushman & Wakefield reports, Florida’s statewide average vacancy rate is 6.6%, while the US average is 7.7%. CB Richard Ellis and C&W reports put overall vacancy rates in Miami-Dade, Broward and Palm Beach counties between 5% and 8%.

“Industrial vacancies are up, and we believe they will continue to spiral up during the next several quarters,” Michael Silver, first vice president at CBRE in Miami, tells GlobeSt.com. “Given that, there is pressure on the rental rates and landlords are discounting rent and selling at a lower price.” Concessions are up throughout the tri-county area, brokers agree–a move made by landlords or sellers to generate more interest.

According to several market reports, average asking rental rates have dipped, especially in Broward County. C&W reports that the average rental rate there went from $9.24 in the first quarter to $8.87. “Rental rates in the tri-county area are down anywhere from 10% to 20% from the peaks of what they were in selective submarkets,” says Silver. Rents are expected to continue on a downward trajectory through this year and into 2009 as new space comes online, CBRE reports.

The investment climate for industrial real estate is also suffering, brokers say. “REITs and institutional investors are not paying the same numbers as when the market had record breaking rental rates and higher occupancy,” says Silver. CBRE also reports a 50% decrease in transactions in Miami-Dade, despite resilient market fundamentals.

[IMGCAP(2)]“There is not the eagerness that there was a year ago,” says Jay Ziv, senior vice president with Colliers Abood Wood-Fay in Miami. “There’s been a softening of the institutional players in the market, and there’s a decompression of cap rates that directly effects the purchasing of investment properties.”

Looking ahead, South Florida could see a number of sale-leasebacks, following a national trend of firms working to add liquidity, C&W reports. The firm cites Seagis Property Group’s purchase of 89,290 sf of manufacturing space for approximately $8.1 million from Doormark, Inc., who will remain in the building as the tenant, as an example.

In addition, market reports says land constraint and rising construction costs will place limits on the number of projects breaking ground through the rest of 2008. However, there is a trend of land returning to industrial use after residential projects get abandoned, says Silver.

Despite the overall residential downturn effects, brokers point toward South Florida’s international trade market as a constant insulation for the area. A rise in port exports keeps demand steady, says Audley Bosch, associate director with C&W in Miami. Trade agreements that are becoming more lenient with Latin American and Caribbean countries greatly benefit South Florida, he says, adding that future foreign investment into American logistics companies will follow. “The seaport and the airport are driving the logistics and freight forwarding market in a positive trend,” says Bosch.

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