The warehouse boom between Tampa and Orlando could see another big spike from the coronavirus pandemic
By Ashley Gurbal Kritzer
Tampa Bay Business Journal
Published: May 4, 2020

The coronavirus pandemic is dealing brick-and-mortar retail yet another blow — and as even more consumers turn to online shopping, Tampa Bay's industrial real estate market could see even more demand for e-commerce warehouses.

This region's industrial real estate market — especially the Interstate 4 corridor between Tampa and Orlando — has been in the growth mode for several years. At the end of the first quarter, Tampa Bay's total vacancy rate was just under 5 percent, according to data from JLL Inc., though the amount of space under construction is down from the same time period in 2019. At the current pace, JLL says, 2020 deliveries will total less than half of the 2.6 million square feet of warehouse space that was built in 2019.

The coronavirus pandemic, of course, adds a layer of uncertainty to nearly any type of transaction. In warehouse real estate, it's meant a slowdown in leasing activity, but JLL's industrial team attributes that largely to social distancing measures that have shifted property tours to virtual platforms. Between 10 percent and 20 percent of warehouse tenants in the Tampa Bay area have sought rent relief, according to JLL's rough estimates. Industrial owners in the Westshore and Pinellas County submarkets face the most exposure to the pandemic, as those areas are home to smaller tenants than East Tampa or Lakeland.

But industrial real estate faces a unique upside from the pandemic: Most predict that e-commerce will continue to surge — and that will drive demand for warehouses, especially in places like the Interstate 4 corridor, which is close to multiple major population centers. Because of that, developers and investors are still looking for opportunity in the area, said Julia Silva, managing director of the Florida industrial capital markets team for JLL (NYSE: JLL).

"Generally, throughout the U.S., I think we expect spec development to slow down a little bit," she said, "but in the same vein, our phones are blowing up from developers who want to take a position in the recovery."

Many of those inquiries are coming from commercial developers who weren't previously in the industrial market but are turning their attention away from other asset classes in the wake of the pandemic.

"They're saying, 'OK, the fundamentals of industrial still look good,'" Silva said.

Developers and investors who are looking for land positions are looking at least a year out to begin construction, as entitlements and permitting can take anywhere from eight to 12 months.

E-commerce has long been a big driver of industrial real estate deals in Central Florida. As hot as that market has been, brokers say it could see even more demand in the months and years to come.

"It's going to be the belle of the ball for quite some time," Silva said of e-commerce, "as we’ve transitioned the way we’re buying product even more so."

Ryan Vaught, executive managing director at Colliers International Tampa Bay, has a similar take.

"There’s a lot of talk that the warehousing sector is going to be better off after this, because consumers we’ve seen that it’s possible to function without flying places or going to the store," he said. "So the buzz in the industry is that this is going to pour gas on the e-commerce fire."

Other post-Covid-19 dynamics that could benefit industrial real estate include increased inventory space, especially after shortages of consumer goods during the pandemic, and the on-shoring of manufacturing.

There are still a number of large deals in the market, and both Silva and John Dunphy, managing director, expect those transactions to move forward. In East Tampa, a user seeking 250,000 to 300,000 square feet is on the larger side; those size deals are large in Lakeland, too, though the standard has changed in recent years with an influx of tenants in the 750,000 to 1 million-square-foot range.

Going into the pandemic, Dunphy said, the market was "strong as I've ever seen it." Before the pandemic, he expected the majority of new space hitting the market to be leased by mid- to late summer; even now, he thinks it will be absorbed by mid-fall.

"The majority of those bigger deals — 250,000 square feet and above — a majority of those are continuing to move forward," he said. "They’re just not done yet."