Despite construction boom, I-4 warehouse market may still be underbuilt
By Ashley Gurbal Kritzer
Tampa Bay Business Journal
Published: Apr 6, 2022

Warehouse construction has boomed between Tampa and Orlando in the last decade — but it still may not be enough for the demand on the horizon.

While million-square-foot warehouses leased by Amazon.com and other household names grab headlines, the majority of industrial properties in Central Florida are under 500,000 square feet, said David Murphy, executive vice president at CBRE Group Inc. in Orlando.

CBRE recently released a study on the big-box warehouse market in North America, qualifying warehouses of over 200,000 square feet as big boxes. While demand was surging before the Covid-19 pandemic, the pandemic accelerated adaptation to online shopping, driving huge demand for warehouse space — especially in Central Florida.

In 2021, 5.7 million square feet of industrial space was delivered in Central Florida, according to CBRE — and the majority of those buildings were under 500,000 square feet. Another 5 million square feet are under construction, but there currently are no facilities under construction that total more than 750,000 square feet.

“Developers are underestimating how much additional industrial demand we’re going to see in the next two years,” Murphy told the Tampa Bay Business Journal, “and it’s already causing problems with our tenant clients.”

There’s more than online shopping driving the post-pandemic boom. Companies are also looking to protect themselves against supply chain shortages by keeping more stock on hand, which means they need more warehouse space.

“Very few markets have benefitted from the supply chain shift as much as Central Florida,” Murphy said.

There are two reasons for that: the region’s influx of new residents as well as the logistical difficulties of distribution within a peninsula.

“The combination of the geographical barriers on the east and west coasts and the fact that all of your trucks going north are empty makes it not an easy state to distribute to,” Murphy said. “Companies have realized there’s a competitive advantage to being in the center of the state.”

Consumer demand for deliveries in two days or less is another factor in Central Florida’s industrial boom — and while that’s been a trend for years, the pandemic also accelerated demand for one- or even same-day delivery. But that doesn’t mean industrial tenants are shuttering facilities in hubs like Atlanta or Savannah, Georgia; Florida has just matured into a distribution hub in its own right.

“Florida is a very expensive state to distribute to, and if suppliers could distribute from Savannah, that’s how they’d prefer to do it,” Murphy said. “We’ll have clients who’ll look at it and say, ‘Can we just do Florida distribution from the hub in Savannah?’ And the answer is usually no.”

At the same time, those warehouses are getting bigger because companies have switched from an emphasis on efficiency in the supply chain to a focus on resiliency — “from just in time to just in case,” Murphy said.

“Warehouse space is generally 5% to 7% of a company’s overall expense budget,” he said, “and what they’re realizing is it makes sense to lease a little more warehouse space but have your product available. It’s much more expensive to not have the product available and not be able to make the sale.”

The industrial real estate market in Central Florida has been so hot for so long that Murphy, like many others in the industry, thought it was peaking years ago. But the pandemic has changed his perspective.

“I really thought we were hitting the top of the market in 2019, and what I didn’t see coming was how much the pandemic would act as an accelerant to the changes we were already seeing,” he said. “I think we’re closer to the beginning than the end of that cycle, and I think it’s going to be a pretty active next couple of years.”

And while CBRE has data to back that up, Murphy also can’t ignore the anecdotes that support it: Friends who drive from Orlando to Tampa will remark to him on the number of warehouses under construction along Interstate 4.

“Ten or 15 years ago, nobody even understood what I did,” he said, laughing. “Now, industrial has become sort of cool.”