October 31, 2014

Real Estate

Lewis M. Goodkin | 1/1/1996
For most of Florida's real estate industry, 1996 will be a good, but not a great, year. While growth will continue in all sectors, the rate of increase appears to be slowing. Only in the office and industrial markets -- which were moribund in the early 1990s -- is there likely to be a pickup in new construction, compared with the previous year. "It seems that 1994 was the peak of the cycle," says Carol Taylor West, director for forecasting at the University of Florida's Bureau of Economic and Business Research. "Construction activity will still be going at a good level, but it won't be a major contributor to job growth. We don't expect a decline in construction employment until perhaps 1997."

Projections by Miami-based Goodkin Research show real estate services jobs should grow slightly faster than the 2.8% increase we projected for total non-agricultural employment, but construction jobs should slow to about a 1% gain in 1996.

On the residential side, Goodkin Research studies indicate about 118,450 housing starts in 1996, up from the 115,000 in 1995. An increase in second home and pre-retirement home sales and greater population growth (270,000 in 1996, compared with 264,500 in 1995) are the two primary reasons for the upturn.

In the commercial real estate markets -- office, industrial and retail -- Goodkin Research projects more than 40 million square feet of new construction in 1996, about the same level as 1995. This demand includes10.6 million square feet of office space, 19 million square feet of warehouse, showroom and industrial space and 10.8 million square feet of retail space.

For investors, 1996 will present about the same number of opportunities as 1995.

Well-situated warehouse, office, retail and apartment buildings are likely to benefit from generally rising occupancy levels and continued strong demand.

Residential
Bill Watson, president of Watson Realty, a Jacksonville-based 39-office firm, expects 1996 to be a good year for home sales, but probably not as strong as the previous two. "Receiving an NFL franchise made a lot of people aware of Jacksonville, and we got some relocations that we might otherwise have missed," he adds.

In South Florida, Michael Pappas, president of the Keyes Company, a Miami-based brokerage firm, says sales volume in the region -- thanks in part to the Hurricane Andrew rebound effect -- showed a "strong, steady pace" in 1995. "We're getting back to a normal cycle."

Throughout the state, foreign buyers are becoming an important part of the residential market. Europeans are buying condominiums in the Kissimmee region, while Latin Americans prefer Miami and Tampa. Many condo and second home projects, particularly in the $250,000-plus price range, are sustained by foreign buyers.

Modestly priced homes are selling well in Orlando, Tampa, Fort Lauderdale and Fort Myers. "When interest rates are in the 8% range or lower, the first-time buyer can enter the market," Pappas says.

The pace of apartment construction should quicken in 1996 as vacancy rates in most markets are in the 5% range, and financing will be more readily available. In Dade and Broward counties, about 11,500 multifamily units in large complexes were approved in the first half of 1995 and a significant percentage of that construction is now underway. Jacksonville, Orlando and Palm Beach County also should see significant increases in apartment buildings.

Planned Communities
Large-scale residential development in 1996 will continue to lag well behind the hectic pace of the late 1980s. Demand is still catching up to the over-development of that period when Florida developers were scrambling for regulatory and growth management approvals. That oversupply led to the introduction of more moderately priced homes and motivated more developers to build homes themselves. It has also made planned communities less attractive to traditional lenders, such as the major insurance companies that were active in the 1980s.

In 1996, the most significant planned residential communities will be in South Florida, including the Abacoaa Property in northern Palm Beach County, owned by the MacArthur Foundation, and the former Blockbuster Park tract in southwest Broward County, which was recently purchased by Atlantic Gulf Communities.

Other major residential development will occur in the southwest sector of Orlando and the Kissimmee area, which continues to benefit from domestic and international tourism.

Office
Florida's office markets will strengthen again in 1996. After five years with virtually no construction, vacancy levels have fallen to ten-year lows in many regions. The combination of higher occupancy levels and greater availability of financing may generate new construction in selected markets.

"We see improving market conditions throughout the state," says William Moss, executive vice president and Florida regional manager of CB Commercial in Orlando.

"There are higher rental rates and better occupancies in all product types, particularly in suburban markets," Moss says. "It's taken a decade to work off oversupply."

In late 1995, Palm Beach County's office vacancy rate of 17.2% was highest among major Florida markets, while Orlando's 12.4% was lowest, Moss says. Looking solely at downtown office markets, Tampa had the highest vacancy rate, 20.7%, while Orlando's was just 8.5%, best in the state.

Fort Lauderdale's downtown market is likely to continue its resurgence from a 25% vacancy rate in 1991, to a 12.1% rate in mid-1995, according to Moss.

On the other hand, downtown Miami's 19% vacancy rate is unlikely to improve in early 1996 because of continued downsizing and breakups of major law firms, according to George Hektner, vice president of corporate services group, Grubb & Ellis in Miami. "As fast as space is leased, it becomes available again. Things are not getting better."

Most new office construction in 1996 will occur in suburban markets, but it's primarily build-to-suit projects, such as Blue Cross and Blue Shield's new facility in the Jacksonville suburb of Deerwood.

Almost half of all new industrial construction in Florida this year will be new warehouses and industrial facilities. That's because vacancy rates have fallen to below 10% in all major markets.

"We're seeing a strong interest in development of new industrial space in all markets," Moss said. Orlando and Tampa have the highest vacancy rates at 8.2%, while Miami at 3.6% is the lowest.

Fort Lauderdale's I-595 corridor remains a hot market for distribution companies serving South Florida, and the Palm Beach County industrial market has strengthened although IBM's continued downsizing in Boca Raton could impact that community in 1996. "There is still an overall trend to move north out of Dade County to find cheaper rents and land," says John Rosser, vice president of industrial office investment at Grubb & Ellis.

Jacksonville's warehouse market was one of the hottest in the state in the first half of 1995, with about two million square feet of space absorbed. Highway improvements, the new Dames Bridge to the northside subdivisions and increased port activity are among the driving forces.

Retail and Hospitality
Retail development across Florida is driven by demand from national superstore chains, the "big box" users like Target, Best Buy and Circuit City. But retail construction will continue at a slower pace in 1996 because many major markets are already well supplied.

Miami's retail vacancy rate of 7.3% is lowest in the state, Moss says, while Jacksonville and Palm Beach County have the highest rates, 15.8% and 15.2% respectively. Vacancies are declining in Orlando, Jacksonville and Fort Lauderdale although retail space remains in oversupply.

Leasing rates are slowly creeping up, with a typical 5% increase expected in 1996 -- about the same as last year. Says Greg Kessel, senior vice president at Grubb & Ellis: "National and regional retailers have discovered the mid-size markets like Pensacola and Gainesville. There are no major unserved areas."

Florida's lodging industry will see relatively little new construction in 1996, a continuation of the decade's slow-growth trend. But "demand has been clipping along," says Jon Simon, a partner at KPMG Peat Marwick in Miami, which tracks the hospitality industry.

The hotel industry in both the Orlando area -- largest in the state -- and Miami may benefit this winter season from the summer hurricanes that slammed several Caribbean islands. "People planning vacations can't change to other Caribbean destinations because there is no excess capacity," Simon says. "That will have a positive effect on the state."

Timeshare sales and construction in 1996 will be concentrated in the Orlando, Fort Myers-Sanibel Island and Southeast markets. "In Orlando, the only issue they're facing is over-development," Simon says. "It's the most competitive market in the world for timeshares with at least 17 major projects."

One thing for sure about Florida's real estate business in 1996: There will be more dollars available for financing than any year since the late 1980s. And when money is available, builders will build.

Lewis Goodkin is president of Miami-based Goodkin Research Corp.

Tags: Florida Small Business, Politics & Law, Business Florida

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