Commercial Real Estate in Florida: What's HOT and What's NOT
Duke Realty Airport Center, West Palm Beach [Photo: Duke Realty]
If there has been a consistent bright spot in Florida's real estate market, it is the industrial sector — warehouse-type space that includes everything from grocery distribution facilities to storage to manufacturing plants. As of the second quarter, vacancy statewide was only about 10%. "That market is extremely hot and getting hotter," says Ed Mitchell, of Duke Realty, which purchased 51 south Florida industrial buildings with close to 5 million square feet in late 2010 and early 2011. Mitchell says institutional investors and international players are shopping for Florida's industrial developments and are willing to pay healthy prices.
Shane Soefker, senior managing director of Cushman & Wakefield of Florida, says the fundamentals of the industrial market are strong because the sector hasn't suffered from overdevelopment. Even more, the time it takes to bring new projects to market is short, buffering it from volatility in tenant demand. "Industrial is traditionally one of first product types to lead from recovery," he says.
South Florida markets have seen the most industrial sales this year with 14 properties selling for nearly $140 million (75% of the total industrial sales in Florida). Meanwhile, leasing activity elsewhere in the state is strong as well. In Lakeland, Greg Ruthven, president of The Ruthvens real estate and development firm, reports leasing more than 100,000 square feet in the second quarter, most of it for distribution use.
Construction and expansion at some of the ports in major cities on Florida's coast are expected to keep this sector strong at least for the next five years.
Harbor Town at Jacaranda, Plantation [Photo: Richard Given, CBRE]
Unsure of the economy and the true value of homes, prospective buyers are choosing to rent. Apartments easily outrank all other property sectors in the state, with only 6% to 7% vacancy, says Mary Jo Eaton, senior managing director of CB Richard Ellis.
Because of high demand, price hikes are tolerated in some markets. "Rents are only down 3% from the 2006 peak," Eaton says. "That shows the sector's strength." Concessions doled out during the slump no longer are necessary to attract renters. For example, in Orlando, landlords are giving concessions of less than a full month's rent — if at all — in contrast to the two months of free rent offered just two years ago.
Readily available financing from Fannie Mae and Freddie Mac is bolstering buying activity, and institutional buyers are pushing up prices in areas throughout the state with the belief that rental income will continue to improve. Commercial real estate researcher Reis reports that Orlando saw vacancies fall 2.6% over the last year while vacancies dropped 2% in Fort Lauderdale and Tampa.
In some Florida markets, new construction is under way. Camden Property Trust, a Texas real estate company, has begun construction on two apartment developments in Tampa and two in Orlando. The projects will bring more than 1,000 units into the marketplace.
Feather Sound Country Club, Clearwater [Photo:Feather Sound Country Club]
» Golf Courses
Steven Ekovich has brokered the sale of 17 golf courses in the last nine months — 12 of them in Florida. The director of the national golf and resort group of Marcus & Millichap in Tampa says golf course valuations are at their lowest level in 15 years because of several factors: The financial crisis, the loss of 1.5 million golfers nationwide in the last two years and a glut of courses built in the last decade.
In August, golf industry veterans Charlie Staples, Mike Miraglia and Tom Bennison formed Private Golf Club Management with Dallas-based HBT Golf to buy private country clubs and golf courses. Its first acquisition was Feather Sound Country Club in Clearwater. In late 2010, ClubLink, a Canadian operator, made its first U.S. acquisition when it bought eight courses around Tampa Bay. It followed that with the acquisition of Woodlands Country Club in Fort Lauderdale.
Complicating matters is the fact that golf course financing is non-existent; all deals this year have been cash. The average sale price is $2 million to $4 million.
"This is not as much of a real estate play as operating firms looking for distressed courses being run poorly," says Stephen Szabo, a real estate partner at the law firm of Foley & Lardner. "They think they can lower the cost of operation, enhance membership and find some economies of scale."
NorthPointe Village, Lutz (north of Tampa) [Photo: Jeffrey Camp]
» Offices and Land
Weakness lingers in the office sector, with vacancies near or above 20% in most regions of the state. Meanwhile, undeveloped land ?— once considered prime for office buildings or mixed-use complexes — is now the most troubled sector of commercial real estate in Florida. Values have fallen particularly in less populated counties close to big population centers such as Hernando County north of Tampa. "People speculated and bought this land, invested their fortunes, made their plans and then the music stopped," says Larry Richey, senior managing director of Cushman & Wakefield in Florida. Land values may be as little as 10% to 50% of peak prices, Richey says.