Historically, commercial real estate markets follow residential. However, that’s not currently the case in Florida. While there is excess inventory in housing, the commercial market has remained steady.
“The slowdown in the residential market is really just a readjustment to normalcy,” says Tom Bible, vice president of operations at Colliers Arnold, Tampa. “We had an extremely active, investor-driven market that artificially inflated demand. This caused builders to step up the supply side of the equation, resulting in an 11- to 12-month supply of housing. A normal balanced market is a six-month supply. So with demand remaining constant as all true indicators show and new construction on hold for the moment, the market should readjust in six to seven months.”
Bible adds that over the last 18 months, there was very little commercial speculative building that would create an excess in inventory. “Therefore, prices and investor activity are holding ground,” he says.
Smart Business asked Bible why he thinks the outlook for commercial real estate in Florida will remain positive.
Discuss the outlook for Florida’s real estate market over the next decade.
With baby boomers approaching retirement and the appeal of Florida’s climate and lifestyle, we predict the state to continue its growth well into the next decade with a possible shift in demographics as land scarcity drives prices further north, especially along the coastline.
The current unemployment level in the Tampa Bay area and the state of Florida is 3.1 percent, compared to the national average of 4.1 percent. Our active work force, growing population and increase in technology, medical and professional services should continue to fuel demand.
As people continue to migrate to the Southeast, Florida’s retail and professional services markets will continue to grow to serve them, and the work force that fills that demand will boost Florida’s population further, continuing the demand for housing of all price ranges. Distribution and warehousing naturally follow, and so continues the relationship between commercial and residential real estate. Both markets depend upon one another but do not necessarily follow the same trends when the market is influenced by unnatural demand stimulus, such as it was with the investor-driven boom in residential housing.
Is real estate investment still an attractive alternative to the stock market’s volatility?
Yes. And due to Florida’s inherent land scarcity, values will continue to rise well into the future. We still remain a value as compared to other markets, such as California, New York, D.C. and Atlanta.
Ever since Sept. 11, news developments are constantly affecting the stock market. That’s not the case with real estate. When you look at long-term investments even with Florida’s insurance and property tax issues real estate is still a bargain and a good investment.
What are the biggest challenges in Florida’s real estate market?
Property insurance and tax rates are the primary concern in both the residential and commercial markets. Insurance rates have risen dramatically over the last two years, especially in certain areas along the coasts. Simply put, Florida needs more competition in the insurance arena. There are many ideas being explored, such as investor cooperatives and increased equity positions, and some investors are beginning to self-insure. Lee Arnold is very involved in a state council currently addressing the issue.
As for property tax, you experience increases any time there is a spike in the demand curve. There are fixed-income homeowners here who can no longer afford their property tax bill because their home’s value has risen so dramatically. These homeowners may have to sell their homes and leave, as builders convert older properties into higher-value homes to attract the many wealthy baby boomers migrating to Florida. Many options are being explored statewide to mitigate the impact of property tax spikes on Floridians.
How should commercial investors choose a brokerage firm?
When looking for professional guidance in either market, seek out the counsel of a specialist in that business line. The increased number of residential agents practicing commercial brokerage in the last two years also added to the investment frenzy and over-inflated values, particularly in the multi-family and local investor-controlled retail property markets. Many investors over the last year were left holding the bag when their full-service agent in a residential shop decided not to play in that field anymore. Ask for their rsum and check references to ensure you are working with a commercial specialist.
TOM BIBLE is vice president of operations for Colliers Arnold, Tampa. Reach him at email@example.com or (813) 205-9497.