HOT

Duke Realty Airport Center, West Palm Beach [Photo: Duke Realty]

» Industrial
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]

» Multifamily
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."

... NOT

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.

HOT and NOT Across Florida

Miami, Palm Beach/ Southeast Florida

Ryder Integrated Logistics facility at Beacon Lakes, Miami [Photo: Richard Given, CRBE]

On the rebound: South Florida, hit hard by overbuilding, is seeing signs of positive momentum in its industrial real estate sectors. Logistics companies, food manufacturers and distributors are looking for space in south Florida. International trade and the Port of Miami have helped the Miami-Dade County industrial market turn the corner, according to CB Richard Ellis. Broward and Palm Beach counties, however, are still searching for a driver that will lead them out of the downturn. Because of the relatively low vacancy in this sector, sales of industrial properties have increased, with buyers clamoring for quality industrial offerings.

Still struggling: As in most areas of Florida, the office sector remains weak. Vacancy rates are higher than pre-recession levels, and new projects in some submarkets are only adding to the oversupply. But tenant confidence is increasing, and many are showing a willingness to commit to longer-term leases. Phil Procacci, of Procacci Development, says he has begun the permitting process for a new hurricane-resistant, 85,000-sq.-ft. office building in west Miami-Dade and will begin construction once he has a commitment from a large tenant. His existing office building in the area is 99% leased. "There are tenants who are moving to take advantage of competitive rents," Procacci says.

Mobis Parts America (subsidiary of Hyundai) facility, Miami [Photo: Richard Given, CBRE]

Vacancy Rates (Mid-year 2011)

Fort Myers, Naples/Southwest Florida

On the rebound: The collapse of the housing market has hit this area hard. Southwest Florida is emerging from the downturn, but has a long way to go. Because property values have yet to stabilize, some commercial real estate sectors are weak, but the market has bottomed out, particularly in Naples. In north Naples, large tract builders are getting ready to start construction. "As housing construction comes back, that will fuel commercial real estate," says Larry Foster, manager broker with CB Richard Ellis in Fort Myers-Naples. In the multifamily sector, Lloyd Berger, president of Berger Commercial Realty of Fort Lauderdale, handled the sale of several distressed apartment buildings in Fort Myers in the last year and saw a big appetite from buyers. "This sector is hot in every market around the state."

Borders (now vacant), Fort Myers [Photo: Borders]

Still struggling: Retail has been hit hard amid the slow economy. Along with the loss of national chains like Borders and Linens 'n Things that closed everywhere, the Fort Myers/Naples market has experienced the loss of many local shops and restaurants. "The worst is over," Foster says, "but the question is how quickly will the market come back?"

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Tampa/Tampa Bay

Verandahs at Brighton Bay, St. Petersburg [Photo: Richard Given, CBRE] Developers are building nearly 2,800 apartment units in the Tampa Bay area.

On the rebound: The area is experiencing new momentum in the office sector, with small business growing and expanding into larger space, particularly in the Westshore submarket. At the same time, the Tampa apartment market continues to recover with the vacancy rate improving from an all time high of 10% or more two years ago to 7.5% today. The vacancy rate is expected to continue to improve as the job market recovers. With rents rising and concessions becoming less common, developers are building nearly 2,800 units. From an investment standpoint, there is tremendous demand for apartment buildings, says Robert Goldfinger, managing director of Franklin Street real estate services in Tampa. "Investors not only want the well-run, well-occupied buildings, but also the distressed properties where there is opportunity to add value," he says.

Still struggling: Two tenants of more than 100,000 square feet signed leases in the second quarter, giving the industrial market a boost. But there is still an abundance of warehouse space available for the typical users of an average 15,000 square feet, says Nancy Phaneuf, president of Nancy Phaneuf Commercial Realty and Development in Tampa. "Rents haven't tightened up enough for anyone to think about new construction. I think that will take at least another year." Phaneuf says landlords also are providing incentives and reducing rents to keep their existing industrial users. "There's not a huge demand for space that can't be accommodated with the inventory we have."

Orlando/Central Florida

Conditions favor office tenants, with favorable lease rates and concessions still available. [Photo: Richard Given, CBRE]

On the rebound: Multifamily housing stands out as the strongest sector in this marketplace, buoyed by job growth and the large population of hospitality workers looking for temporary housing. Occupancy in apartments is up to 93%, and rents are forecasted to grow. Sales activity has increased steadily as well.

Still struggling: Orlando's office sector is still very much a tenant's market, with concessions available in addition to softened lease rates. According to CB Richard Ellis, downtown Orlando has seen some absorption and has the second-worst vacancy of downtown Florida markets, standing at 18.2%. However, in the industrial sector, Orlando's vacancy is the worst in the state, which includes more than 1.1 million square feet of sublease space.

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Jacksonville/Northeast Florida

St. Johns Town Center, Jacksonville [Photo: Simon Property Group]

On the rebound: Jacksonville's retail sector is showing signs of recovery. National tenants filled several large vacancies in the Southside, Regency and Westside submarkets, and three big investment companies purchased a total of 1.4 million square feet of retail space in the first half of 2011. "The recovery has begun in retail, but it is isolated to higher quality centers in better locations," says Cliff Taylor, a retail investment sales broker with CB Richard Ellis in Jacksonville.

Still struggling: Jacksonville's office market is considered one of the weakest large markets in the state, with vacancy above 20% for the ninth quarter in a row. Demand for downtown space shrank when CSX cut its space by 20% in the second quarter of 2011. Richey says the vacancy rate has been tied to lack of demand, rather than construction and oversupply. He believes the market will be stuck in neutral for at least another year with no new commercial buildings until occupancy rates rise.

Northwest Florida

On the rebound: Northwest Florida's retail market is coming back slowly but steadily, much of it generated by tourists returning to the area, says John Griffing, director and president of NAI Halford, a commercial real estate firm serving five counties in northwest Florida. The area's office market also is seeing some rebound, particularly in its urban centers. "We have had branches of large firms from outside the area signing leases for class A space," Griffing says.

Still struggling: Undeveloped land, inland and beachfront, in northwest Florida has dropped in value, mostly because of lack of demand and available financing, Griffing says: "That market is dead." The industrial sector also is considered weak. "We're sitting with old warehouse buildings that need work, and we don't have the job creators coming in to occupy those spaces," he says. Values of industrial buildings, regardless of size, have dropped as much as 50%. With lack of demand, the market to sell industrial properties is difficult, too, he says.