Q1 2026 South Florida CRE Market Update

Q1 2026 market update from your favorite South Florida Industrial Real Estate Podcast! Thank you to my cohosts, Michael and Tom, for another incredible episode! 

These posts and statements are my own and do not represent the positions, strategies, or opinions of CBRE, its clients, or partners.

#cre #commercialrealestate #industrialrealestate #floridarealestate #floridabroker #cretrends #LarryG

Transcript

SPEAKER_00 0:00

Hey guys, thanks for joining us. This is the South Florida Industrial Real Estate Podcast. I am joined here by my co-hosts Tom O'Lachlin and Michael Oratsky. We want to thank you for joining us. We're going to jump into Q1 overview 2026. Quarters closed just recently, and we really want to dive into some of the details related to vacancy and what we're seeing sort of in the numbers. So, Mike, I'll kick it off with you. What do you see in uh in terms of the end of Q1 and what's going on?

SPEAKER_02 0:32

Yeah, um no, so yeah, we we just wrapped up and just got the numbers in. And you know, I know we we talked about this here to end the year in 2025, and we saw a bunch of velocity there to end the year as as we typically see that mad dash there to the end of the year. Um we're starting to see some of those deals that hit late in the year start to show up in some of these numbers. So, you know, net absorption turned positive. We're over 100,000 square feet of positive absorption um in Broward County, which you know is not stellar in historically for the market, but it shows that we're trending, we're trending the right, the right direction. Um it's a sharp turnaround. Uh absolutely sharp turnaround from what we experienced in a couple quarters there last year. Um the vacancy held flat, which um again I think I think is a is a pretty big win with what was delivered last year. Um and I mean, you know, aside from the handful of construction projects which we'll get into that are under construction, we don't really have anything else in the pipeline in Broward County. Um so I mean the numbers are are trending positively, the asking rates are holding. Um it's pretty pretty much what we expected to see with the velocity we saw at the end of last year. Um, but you know, with the pent-up demand and what some of the deals that we saw, we're we're expecting those to jump even more uh going forward into 2026.

SPEAKER_00 1:43

Awesome. Tom, you got anything to add to that?

SPEAKER_01 1:45

Yeah, I mean I just touch on um Mike kind of covered Broward. Dade County is probably a hundred basis points higher in vacancy. They're six and a half to seven. I mean, it's the market's twice as big as Broward. So they and they built a lot more buildings, so there's a little bit more wood to chop down there. But um, you know, Dade County, I think, is also starting, you know, kind of hitting the the bottoming out process, I would say. You can tell from just the deals that are starting to get inked and the deals you're hearing about. Um, people are starting to chop through a lot of that, a lot of the buildings, a lot of the vacancy, especially on the larger side, a lot of the bigger buildings have deals on them. So that should help move the needle. Um, you know, I would say in Dade County, one area that we saw starting to, you know, show some concern is um in Q1, you are seeing kind of a a lot of B and C class buildings come back, smaller B and C class buildings come back. That's you know, although it feels better on the street and like you know, the market's moving, you know, in a positive direction, the the research numbers might still be a little ugly for like the next quarter or two as you kind of clean out. Like, you know, you're almost like, I don't know, I've been doing this long enough. Like, you know, you kind of it's almost like a recession. Like when they officially call the recession, you're almost already out of the recession. You know, like when you're on CNBC, they're like, We're in a recession. And like the people on the front end of it are like, no, we're already like that was two quarters ago. We're better off than we are now. Yeah, and I feel like that's happening in Broward and Dade County on the industrial, that it just there's a better pace, there's more velocity, there's more tenants across phase, you know, across quarter one.

SPEAKER_02 3:25

Yeah. And and Tom, to your point, I think this was a trend that we were tracking very closely last year, and it's a flight to quality. Dade more than Broward because they do have that delivered move and ready product. Um, but the spread on what the asking rates are and that B plus and C, you know, C product is is not that much for a tenant to go and relocate from call it 30, 40,000, 50,000 square feet and B and C 24 to 28 clear product to a 32 to 36 foot clear brand new distribution building. So we're seeing a lot of that, and which is why the numbers aren't quite so you're seeing a guy go from you know 24 to 30,000 feet or 45 to 60,000 feet. So they're they're incremental jumps um that you know we're seeing that flight to quality definitely play out, um, which I think we're starting to see in the numbers.

SPEAKER_01 4:08

So to support Mike's theory, I I ran some numbers. This is kind of interesting. So I'll run I ran it for Broward. We'll do day next get the next podcast. But for Broward, if you take every building that was delivered um six to twenty-four months ago, so not the stuff that's just delivered, but call it the stuff that's six, call it six months to two years old, there's only six hundred and twenty-nine thousand square feet of it left. Eight months ago, we were at a million four. So like it's starting to get chiseled away. Right. So, you know, that's all that stuff. And then if you talk to the stuff that's being delivered from six months current, or the stuff that's gonna be delivered from today, six months ahead, so call it six months back, six months forward, there's 1.6 million coming to Broward. So there's not, as Mike said, on the new construction stuff, like that's achievable. Like if we kick back into our normal absorption rate, historically, that's 700 to a million three, depending upon what year it is, like a year's worth of inventory sits out there. So it's not, I mean, shoot, you look at other markets, it's like, oh my god, like there's a tsunami coming. Yeah, right. Broward seems pretty um, you know, in a good position to get cleaned up in the first fourth quarter and this first quarter kind of lit that trend.

SPEAKER_00 5:29

Well, you know, it's interesting in our Q4 end of the year podcast. I remember us saying that um rents would likely be in a position to go up at the end of this year. So if we keep trending in this direction and the absorption keeps pace, we may be in a position to start raising rents again. Yeah. At least at least base rents. OpEx has been going up no matter what, but base rents could could start popping again, which would be great for everyone.

SPEAKER_02 5:54

Well, we won't get in the op ex here again, but no, I mean, you know, we're in Broward, we're we're starting to see like there's a true grade scale. Like the new development is at a price point, and like the companies who are doing well and they they need a you know a more modern distribution facility, they'll pay to play. Yep. So there's one number, and then like Tom mentioned, the the A minus second gen or B plus projects, those are the ones that we're still kind of waiting to see what that trend will be and what the the differentiators, but like this is the first time, at least in Micro, that I'm seeing there's a true, like there's a true grade scale. Um right.

SPEAKER_00 6:27

That's the way it used to be historically until things got really weird after COVID and everything. But I will say, um, on on a very bright spot, for the first time ever in Broward at least, we're seeing $20 net deals get signed. Now there's some like TI and and stuff in there that maybe is inflating a little bit, but regardless, um, there are two comps now that have been printed at or above $20 net with like a real OpEx number. So you're grossing into the mid-20s, mid to high 20s right now on the best of the best located and uh the highest quality product, which I'm not saying that that's now the market or anything like that, but it's two we have two comps that have been printed and they're real comps. So it's just kind of fascinating to see. I like Mike, like you said, there's just a big spread between like the best located, the highest quality product, and sort of everything else.

SPEAKER_02 7:20

Yeah.

SPEAKER_00 7:21

Which I think is probably happening nationally. Because when we get on our national calls, they're all saying the same thing. They're saying it in Atlanta, they're saying it everywhere, where the best located stuff is at a premium and bulk has really picked up nationally. The absorption rate has really popped, and we're seeing it down here. Luckily, we've been more resilient than other markets over the last couple of years, and we've held our own pretty strongly. But um, Broward is poised to do very well, and I'm I'm excited about it.

SPEAKER_02 7:46

Well, yeah, I mean, and to that point, and and again, we we kind of talked about this to end the year last year, but the the deals we were talking about that were on the market in capital markets are starting to close, and they they close with a vengeance in Q1. I think what's the number over a billion dollars of trades happen in Broward County alone in Q1. So where we're talking about rates, we're we're like this capital is buying the assets too. They need to be they're underwriting certain numbers in that high teens. I mean, it's good for the market. Like there's we're very institutional, we we always have been for at least the last you know three, four, five years. Um, and there's really no or minimal low-cost alternatives left.

SPEAKER_00 8:22

So yeah, and even like the sort of like the B minus, I would say C plus product that's like 20 foot clear, it's sub-20 foot clear that traded maybe the smaller bay type stuff. I remember when that was trading last year, we were all looking at each other, we were like, these rents that they're underwriting are insane. You hit $30 gross. Yeah. And they're doing it. It's unbelievable. And they're getting it. $30 gross on 10,000 feet. Like, when does that happen?

SPEAKER_01 8:48

I I think one of the other things that's like being established is that like you gotta take like put small bay off to the side because small bay is directly correlation to price. The larger stuff, I think landlords have figured out, and that's kind of why like we're seeing rental rates starting to creep up, is that um like just dropping rate doesn't guarantee occupancy and activity. So I think a lot of them have said, like, why we keep why are we negotiating against ourselves? And they've put a floor into a lot of the projects across Broward and Dade saying, like, you know, like just let's not just because we're quiet or we don't have activity, let's just not just keep dropping rate against ourselves. So I think a lot of the landlords at this point, and I hear it from the tenant reps, you know, some of the guys that only do tenant rep are like, yeah, like I we've kind of hit that floor with how low landlords are willing to go. And I don't know if it's because of what Mike said, a capital markets reaction or just a valuation reaction, or they've got a shovel in the ground and another submarket and they can't keep going lower and lower. So I think from like a rental rate perspective, we've probably, and this is like class A, class B type stuff, C is a different story, small B is a different story, but I think we've probably seen the worst, and landlords now have all kind of collectively realized that like we're done like bottoming out on rental rate. We're gonna go with free rent and TIs as the mechanism to get these deals done. Right. And like they're like, and I know they always pulled those levers, but I think now like they just tell the tenant reps, and I see it on a lot of proposals like that's all we can do in rate. Yeah, you want to hit us over the head with TIs, escalations, you know, free rent, beneficial occupancy, be my guest. Happy to play that game, but rental rate, like that's a that's a great topic for another podcast.

SPEAKER_00 10:32

Maybe we'll do that on the next one.

SPEAKER_02 10:33

Well, I mean, and and to that point too, I I think for us it wasn't a rate issue, it was more of a tenant velocity issue, at least for the last 18 months. So whenever someone in the market for our market, we've talked about the traffic patterns and and the um the transportation patterns. If you have to be in South Florida, it's not like you can go and pick up and I'm gonna move this to our land or Fort Pierce or wherever. So the people who are out in the market and they have a real requirement, they they have to be here. Right. So it's that floor, like if they're in the market, like there is a floor or like the price that they have to pay to be here. Um so I think it was more of a velocity issue versus a price issue, which we're starting again, we're starting to see.

SPEAKER_00 11:08

And that education process of those tenants helping them to understand that there are no options significantly below where the floor of the market is, right? That just doesn't exist in a class A environment. Sometimes um they'll kick the can down the road for a year or two, they'll they'll punt, they'll do short-term deals, they'll take space with other customers or band-aid it or whatever. So that kind of like prolongs the whole process of the market moving. I think we've now been in sort of like a kind of a like a rut for what two, three years, something like that, maybe a little bit more. So it makes sense that now these deals are starting to kick in because these guys have done one and two year extensions and they realize now that rents aren't going any lower. Um and it's a great time to lock in your deal before rents go up. And I we what I predict personally that rents are gonna be going up by the end of the year, um, maybe in a in a dramatic fashion, especially if these high teens and low 20s comps keep getting printed, like everyone's gonna latch on to that and it's gonna be game on. So it's uh it's exciting. And for any of you tenant reps out there, you should be pushing your clients very hard to start doing deals quickly because you might miss your window.

SPEAKER_01 12:17

Yeah, and and I I would say, you know, because obviously we're talking about the first quarter. I would say like January was the hangover from the fourth quarter. Like we were busy January because a lot of deals pushed, whatever it was. You kind of cleaned it up January. February was like a dip, but March came ripping back. Like, and you know, everybody used, oh, we're on spring break. Like that excuse like wasn't needed this year, and it felt like there was a good pace and velocity to the market coming out of the end of the first quarter going into second.

SPEAKER_00 12:46

Awesome. Well, that's a great way to close it up. This has been really informative. We've gotten tons of feedback from a lot of the brokers in the community, a lot of our clients in the community. Everyone seems to be enjoying this podcast. You know, we've just been doing this for a couple of months now, it hasn't been that long. And uh it's it's been great and well received. So we want to just thank everyone for watching. Don't forget to comment, like, and subscribe. Share it with people that you think might find some value in it. And until next time, we'll see ya.

SPEAKER_02 13:14

Thank you.