Tenants who need space aren’t likely to win concessions. — Angelo J. Bianco, senior vice president, Crocker Partners, Boca Raton [Photo: Daniel Portnoy]

After several years of solid growth, the state’s commercial real estate market is slowing as the impact of Florida’s residential downturn spreads. But with only a limited amount of space coming online, the experts expect a stable year rather than a stall-out.

Developers and builders with projects in the planning stage should see more favorable pricing for construction management services, including labor and resources, says Clint Glass, senior vice president of operations at Balfour Beatty Construction in West Palm Beach. Land prices are also falling because there is little demand for large-scale commercial or residential projects in most of the state for the next few years.

Larry Richey, senior managing director of Cushman & Wakefield in Tampa, sees no danger of overbuilding in the state’s office market. “Overall, there’s about 10 million square feet under construction, and we need it,” he says. He notes an increase in sublease space throughout the state but says “the worst impact from the residential situation is behind us. I’m more encouraged about 2008 after the 2007 pause in the market.”

In central Florida, office vacancies have begun to rise, says Greg Morrison, principal and founder of Morrison Commercial Real Estate in Orlando. But with only about 1 million square feet of new office space due to be delivered in 2008, Morrison expects a stable year. “We have a good employment market, and the fundamentals are still in place,” he adds.

The lack of additional inventory should give south Florida’s office landlords the upper hand in 2008, with rents rising. A wildcard: In south Florida, several residential condominium buildings are being repositioned as office projects, which could change the supply-demand equation for office space, says David Dabby, president of the Dabby Group in Coral Gables.

Industrial: ‘Rock Solid’

Most analysts expect Florida’s industrial market to outperform the office sector in 2008. “Almost every metric — occupancy, rental rates, trends, absorption and leasing activity — is rock solid across the state,” says Cushman & Wakefield’s Larry Richey. “The future for warehouse and distribution space in Florida is brighter than ever because of the outlook for changes in the global supply chain that will bring more international goods directly to our seaports.”

Chicago-based Higgins Development Partners remains bullish. The company has purchased distribution properties in Orlando and Hialeah. “With its population growth and demand for goods, Florida is consistently one of the best-performing states,” says Gene Preston, senior vice president. “While the demand for industrial space will still be recovering from the residential market shock, we think Florida will keep growing and outperform the U.S. economy.”

Retail: ‘Healthy’

The Trends Healthy industrial market Stable demand for office space Limited supply of new space ?Declining land prices Moderating labor and materials costs High levels of office sublet space Conversion of residential high-rises to office uses Slowdown in new retail development Slowdown in financing for new projects

Some retail projects will be pushed back until residential construction rebounds, but overall the sector is healthy. “There is still a strong amount of development coming on line in 2008, and the demand still seems strong,” says Robert Breslau, president of Stiles Retail Group in Fort Lauderdale.

John Crossman president of Crossman & Co. in Orlando, says downtown growth will continue across the state, and “even if the new condo buildings are not full, the additional people will encourage and support more downtown retail. Mixed-use town centers will still be in demand in the suburban markets as well. Overall, we look for 2008 to be another healthy year for the retail market.”

Going Green

Look for more demand for LEED certification of new commercial projects.