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Real Estate 2009

Harbour Plaza in Fort Myers
Harbour Plaza in Fort Myers awaits tenants. Almost a quarter of the Class A space in Fort Myers/Naples is vacant. [Photo: Jason P. Smith]

To get a feel for the extent of the pain in Florida’s real estate market, go shopping for Class A office space in downtown Fort Myers. Along First Street, “Now Leasing!” signs have become almost as common as palm trees. Nearly a quarter of all available Class A space in the Fort Myers/Naples area sits empty — the worst vacancy rate in the state.

“The question is — where’s the bottom?” says Mike Davis, executive director at Cushman & Wakefield in Tampa.

Office Vacancies
Market
Vacancy
Pinellas County
19.1%
Palm Beach County
18.6
Jacksonville
17.5
Fort Myers/Naples
16.1
Orlando
15.8
Tampa
14.9
Broward County
14.3
Miami
12.9
Statewide average 15.7
Note: Class A rates, including those mentioned in the story, will be different.
Source: Cushman & Wakefield, third quarter 2008

Gone are the days when growth in office, industrial and retail construction/sales could bouy the sector as the housing market sank. Florida is seeing a 15.7% statewide vacancy rate overall in the office market. In the industrial market, the average rate per square foot for space has dropped to $7.12, from $7.79 two years ago. On the retail front, Florida is likely to see more stores shuttered this month — following a sluggish holiday season — than it has since the recession of 1981-82. Don’t expect a turnaround this year. As companies like Linens-n-Things bail out of large storefronts, vacancies are “going to be the norm for the next year, or next year and a half,” predicts Paco Diaz, senior vice president with CB Richard Ellis in Miami.

And that’s the news from the relatively healthy side of the industry. Housing activity has plunged to just 20% of its bubble highs, says Mark Vitner, senior economist at Wachovia Corp. in Charlotte, N.C. Many markets are rapidly approaching zero new activity. Prices are down about 20% from their peak, returning to 2004 levels. Look for the housing outlook to worsen this year as credit remains hard to come by and as foreclosures continue to clog the market. Florida’s major metro areas continue to log some of the worst foreclosure rates in the nation [“Foreclosures,” page 66].

Nationally, growth in households is expected to correct overbuilding in the housing market by the end of 2009. But because Florida is more overbuilt, it faces a steeper climb out of the slump. Home prices won’t bottom out here until sometime between the middle and end of 2010, Vitner predicts.

Fort Lauderdale
Infill developments such as this one in Fort Lauderdale are showing promise. [Photo: Eileen Escarda]

Bright SpotsGovernment Boost

> While suburban projects “are pretty much kaput right now,” says Alan S. Karrh, senior vice president for retail acquisition and development at Stiles Retail Group in Fort Lauderdale, urban-infill projects with already-established populations are showing promise. “Deals are still slow,” Karrh says, “but there are deals.” Realtors also report higher home sales in urban, close-in neighborhoods.

> Other short-term bright spots include government projects, especially in healthcare and education. Florida’s economic developers say that many city and county governments are offering big incentives and are removing bureaucratic barriers for construction in an effort to jump-start local economies.

> Longer term, major new-town developments, such as Kitson & Partners’ Babcock Ranch community in southwest Florida and the Pugliese Co.’s Destiny in rural Osceola County could someday be home to tens of thousands of residents. Both developments claim sustainability as a hallmark, and both plan self-sufficient, alternative energy systems, for example, as well as sustainable farms.

Opportunity Knocks

Moses Salcido
Moses Salcido

Many investors have heard how a financial genius named Ed Ball picked up St. Joe Co.’s 12 miles of Panhandle oceanfront property during Florida’s real estate bust in the 1930s for less than $15 an acre. Real estate is a long-term business, and based on Florida population projections, “when you look at the long-term, there are still a lot of positives,” Todd Mansfield, chairman and CEO of Charlotte-based Crosland, told a roomful of disheartened investors at Florida State University’s annual Real Estate Trends conference late last year.

Foreclosures
Ten of the 25 metro areas with the highest foreclosure rates are in Florida.
Rank Metro Foreclosure Rate (households)
1. Las Vegas 1 per 62
2. Cape Coral/ Fort Myers 1 per 79
3. Miami 1 per 93
4. Stockton, Calif. 1 per 100
5. Merced, Calif. 1 per 103
6. Phoenix 1 per 109
7. Riverside, Calif. 1 per 111
8. Fort Lauderdale 1 per 114
9. Modesto, Calif. 1 per 118
10. Orlando 1 per 121
11. Vallejo, Calif. 1 per 128
12. Reno, Nevada 1 per 137
13. Port St. Lucie/ Fort Pierce 1 per 141
14. Bakersfield, Calif. 1 per 143
15. Naples / Marco Island 1 per 155
16. Tampa / St. Petersburg 1 per 171
17. Sacramento, Calif. 1 per 172
18. Salinas, Calif. 1 per 180
19. Detroit 1 per 184
20. Melbourne / Palm Bay 1 per 185
21. Daytona Beach / Ormond Beach 1 per 185
22. St. George, Utah 1 per 188
23. Sarasota / Bradenton/ Venice 1 per 189
24. Visalia, Calif. 1 per 205
25. Bergen, N.J. 1 per 207
Source: RealtyTrac
The coming year will offer unprecedented opportunities for investors to pick up distressed assets, said Mansfield and others, such as Moses Salcido, senior development manager at Orlando’s Panattoni Development Co. “There’s a lot of good real estate with bad capital structures out there,” Salcido said. “We’re looking at buying a lot of distressed notes.”

Indeed, now is the time “to take advantage of opportunities that will be others’ misfortune,” Mansfield said. “That’s the nature of the real estate business.”