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Morris Southeast Group Winter 2019 Quarterly Report

February 12, 2019

The View from 50,000 Feet

The U.S. economy remains on solid footing and by summer this year is expected to surpass the longest economic expansion in history, and the 120-month mark set from March of 1991 to March of 2001. Even so, it seems we are trying to talk ourselves into a recession, with frequent media reports variously titled “The recession, when will it strike?” Yet no one bothers to remind us that Australia is entering its 29th consecutive year without two consecutive quarters of negative economic growth, otherwise known as a recession. Economic expansions don’t stop from fatigue – something must cause them.

The Nasdaq Composite Index inched toward exiting the bear market in entered on Christmas Eve, rebounding nearly 20 percent to a Feb. 8 close of 7288.24. It would have to reach 7431.50 to make it official, and if it does, it would be its second-fastest exit from bear marketing territory in history. The rally was led by the FAANG stocks of Facebook, Apple, Amazon, Netflix and Google.

Turning to the property markets, strong Q4 activity pushed 2018 above 2017 for investment volume in the U.S.

  • Commercial real estate investment volume rose 20.6% year-over-year in Q4 to $152.4 billion. Including entity-level transactions, total investment for the year was $534.8 billion, a sizable increase of 14.8% from 2017. Excluding entity-level transactions, which are highly volatile from year to year and can skew annual comparisons, 2018 investment volume was still up by a healthy 4.9%, according to Real Capital Analytics.
  • Greater New York, Greater Los Angeles and the San Francisco Bay Area attracted the most investment in Q4, accounting for 27.7% of all acquisitions. The top-15 markets accounted for 64.4% of total Q4 investment volume.
  • The only sector with cap rate compression in 2018 was industrial, according to the latest CBRE North America Cap Rate Survey. CBD/infill cap rates increased more than suburban for office, multifamily and hotel.
  • Pricing for office, multifamily and industrial properties reached new highs. Increases in multifamily and industrial pricing led the national index, though the pace of growth for multifamily decelerated in 2018.

The View from 20,000 Feet

Broward County added 15,800 net-new jobs during 2018, bringing the Ft. Lauderdale-Pompano Beach-Deerfield Beach MSA to an employment base of 866,300, and with a jobless rate 3.3 percent. Trade, transportation, utilities and professional services led job growth, according to Florida’s Department of Economic Opportunity, Bureau of Labor Market Statistics. Construction (3,300), education and health services (2,100), leisure and hospitality (1,500) were other job sectors that posted gains. However, the county lost 600 financial services jobs and 500 government jobs in 2018.


South Florida should receive increased flows of investment capital into commercial real estate as a result of the Tax Cuts and Jobs Act of 2018, according to Miami law firm Berger Singerman and the firm’s fifth annual survey of over 2,000 local real estate professionals and property investors. Indeed, the Miami condo market was recently featured in national news as the most likely relocation target for New Yorkers and people from Connecticut.

This is the first year that people will be filing tax returns under the new law, and with new limit for SALT deductions (State and Local Taxes) set at $10,000, high-income earners and families with large mortgages are expected to flee high-cost states, including California, where it is not uncommon to pay property taxes of $20,000, $30,000 and even more annually – 100 percent of which was deductible under the old tax rules but won’t be starting this year.

Recent transaction feature

Morris Southeast Group represented the worldwide leader in marine propulsion systems, ZF Marine Propulsion Systems Miramar, LLC in a 62,552-square-foot industrial warehouse lease in Miramar.

The View with Boots on the Ground

The industrial market led other South Florida property sectors in 2018 (again) by posting 5,149,470 square feet of positive net absorption for the year. The overall vacancy rate stood at an historic low of 3.8 percent at year end, with the average quoted asking rental rate for available space at $10.33 per-square-foot at the end of the fourth quarter. Total industrial inventory in the South Florida market amounted to nearly 439 million square feet, or about the same size at Boston’s industrial market.


Total industrial building sales declined on a year-over-year basis and through the first three quarters of 2018, with 167 buildings of 15,000 square feet or larger traded hands, for a total volume of $1,051,381,525, according to CoStar. That compares with 171 building sales in the first three quarters of 2017 with a total volume in excess of $1.3 billion. Cap rates compressed during the year, falling from 7.18 percent in 2017 to 6.59 percent in 2018. At the close of the year, over 7.4 million square feet of industrial property was under construction, led by North Miami Beach industrial submarket (1.75 million square feet), Miami Airport (1.09 million square feet) and Southwest Broward County (1.07 million square feet). 

The South Florida office market was stable during 2018 and ended the year with an overall vacancy rate of 9.1 percent on tepid positive net absorption for the year of 115,133 square feet. The overall office vacancy rate was 8.9 percent at the beginning of last year. Two of the quarters posted negative net absorption last year while two quarters were positive. At the end of the fourth quarter, 3,522,479 square feet of new office space was under construction.

The average quoted asking rental rate for all classes of office product was $32.86 per-square-foot at the close of the fourth quarter. Class A space averaged $39.71, while Class B space was $27.76 and Class C space was $14.87 per foot. Total office inventory at year end was 233,380,457 square feet.

Total office building sales of 15,000 square feet or larger increased in 2018, when 87 office transactions closed in the first three months last year, with total volume exceeding $1.5 billion,

compared with 2017 when 107 office buildings sold, also with total volume greater than $1.5 billion. The average price-per-foot was $215.43 in 2018, versus $213.15 in 2017. Cap rates changed little, averaging 6.81 percent last year compared with 6.72 percent during the same period of 2017, according to CoStar.

Retail real estate in South Florida finished 2018 with a slightly higher vacancy rate then where it started, moving from 3.7 percent to 4.1 percent, yet overall the property sector had a good year, given the onslaught of ecommerce and its affects in other U.S. markets. For the year, 735,202 square feet of retail space was positively net-absorbed, and rental rates increased 3.05 percent from a year earlier, finishing 2018 at an average of $28.16 per-square-foot.

During the four quarters last year, nearly 2.6 million square feet of new retail space was delivered to the market. At the close of 2018, approximately 5.3 million square feet of retail product was under construction, reported CoStar. Retail real estate encompasses Shopping Centers – including community centers, neighborhood centers and strip centers), Power Centers, General Retail Properties, Malls and Specialty Centers, such as outlet malls, airport retail and Theme/Festival Centers.

During the first nine months of 2018, 92 retail properties were sold with a total sales volume of $1.03 billion, compared with the same period in 2017, when 80 retail properties sold for a total sales volume of $1.08 billion. Cap rates came down for retail real estate in 2018, moving from 7.07 percent in 2017 to 6.48 percent last year.

Ken Morris attended the Society of Industrial and Office Realtors (SIOR) Fall World Conference in Denver, CO this past fall. With nearly 1,000 fellow SIORs and sponsors in attendance, it was excellent networking with Thought Leader breakout sessions, panels and brilliant speakers. One of the best speakers at an SIOR event in years – Four-Star Admiral and Navy SEAL William McRaven, presented the keynote address during the Friday session.

Click here for the story “You Just Don’t Quit” Says SEAL Team Six Boss McRaven

Sponsored by Prologis, Four-Star Admiral and Navy SEAL William McRaven was a special speaker for a number of reasons, among them, SIOR has been trying to get him as a keynote speaker for four years but his schedule did not allow it until the Denver conference.

McRaven shared SEAL training stories, stories from his 37 years in the military and of course, the story about the raid on Osama Bin Laden’s compound. He said he was always impressed how people stood up in their darkest moments. “That’s when you have to be your very best – in dark, dark moments when everything is on the line.” He also pointed out that “risk is only relative to you – if someone else is taking a risk, it’s not relative to you.”

Operation Neptune Spear

McRaven is credited for organizing and overseeing the execution of Operation Neptune Spear, the special ops raid that led to the death of Osama Bin Laden on May 2, 2011. CIA Director Leon Panetta delegated the raid to McRaven, who had worked almost exclusively on counter-terrorism operations and strategy since 2001.

According to The New York Times, “In February, Mr. Panetta called then-Vice Adm. William H. McRaven, commander of the Pentagon’s Joint Special Operations Command, to CIA headquarters in Langley, Virginia, to give him details about the compound and to begin planning a military strike. Admiral McRaven, a veteran of the covert world who had written a book on American Special Operations, spent weeks working with the CIA on the operation, and came up with three options: a helicopter assault using U.S. Navy SEALs, a strike with B-2 bombers that would obliterate the compound, or a joint raid with Pakistani intelligence operatives who would be told about the mission hours before the launch.”

Of course the SEALs opted for the helicopter assault and SEAL Team Six executed the raid on Osama Bin Laden’s Pakistan compound, accomplishing their mission.

President Obama, Vice President Biden, Secretary Clinton, Secretary of Defense Robert Gates, Chief Counter-terrorism advisor to President Obama John Brennan (he later became CIA Director) and others tracked the progress of Operation Neptune Spear with impassioned interest and concern. Most people believe this photo was taken in the Situation Room, but McRaven said it was not; rather, it was taken in an adjacent room of the White House.

McRaven’s greatest point during his talk was on toughness, saying “training brings out the toughness in people” yet mostly, “you just don’t quit,” whether it is as a special operations warrior, or in life, sports, and business, if what you want is worth fighting for.

During the Q&A with McRaven, he was asked about Millennials and the generation behind them, or young people just entering and graduating from college. He was very optimistic about this generation and expressed “great confidence in young kids today.” He reminded us that earlier generations of Americans had little faith in what the Baby Boomer generation might accomplish, and it turns out that we have done okay.

Buying, selling, leasing space or do you own commercial property that requires third-party management to take care of the asset? Call Ken Morris at 954.240.4400 or email him at ken@morrissegroup.com.

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