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Commercial Real Estate - Ready to Boom

The fundamentals in Florida are ‘very strong right now’

Florida Trend - 1/1/2007 12:00:00 AM
by Lewis M. Goodkin

 

Going up: Crocker Partners is developing CityPlace Tower in downtown West Palm Beach, the first Class A office tower built there since 1989.

For the past decade, there has been relatively little new office, industrial and retail construction. In fact, for the first time in Florida history, residential developers had outbid the commercial sector for prime parcels. Now, the state’s healthy job market and a shortage of new commercial construction are spurring a commercial construction boom in many markets.

In downtown West Palm Beach, Crocker Partners is building the 18-story CityPlace Tower, the city’s first new Class A office tower since 1989. In the Fort Lauderdale suburb of Plantation, Hogan Group is building Royal Palm II, a 220,000-sq.-ft. office building. And in Miami, Grouper Financial is planning a 29-story Class A office tower as part of a mixed-use project in the Biscayne Boulevard corridor.

“The fundamentals for Florida’s office markets are very strong right now,” says Ray Sandelli, senior managing director at C.B. Richard Ellis in Tampa. “Vacancy rates are continuing to decline, and leasing rates are going up, depending on the market. We see no chance of an oversupply right now.”

The revitalization of many Florida urban centers, with new residential and retail buildings, has added new life to downtown office markets that had largely been dormant for the past decade. Certainly, a “walk-to-work” lifestyle is attractive to many young professionals and empty-nesters tired of commuting from the suburbs.

Perhaps the only trouble spot in Florida is a potential overbuilding of office condominium space. While medical users and smaller professional firms can often benefit by owning their own office space, larger organizations usually need the flexibility of leasing. By the end of 2007, the actual level of condo demand should be clearer.

Florida’s industrial market is also in good shape. Sandelli notes that businesses are clamoring for well-situated warehouse and distribution space. “Everyone wants this product,” he says. “In the Tampa market, more than 40% of the new product planned for 2007 is already precommitted.”

Distribution companies have been seeking new facilities that provide them with greater operational efficiencies, such as higher truck bay ceilings. However, developers are finding it difficult to accommodate the market requirements due to limited land availability — especially since many industrial tracts were rezoned for residential use in the past decade.

Strong population growth is a major driver for the state’s retail market. National, regional and “mom-and-pop” retailers are snapping up spaces in new centers, and vacancy rates are generally in the 3% to 6% range.

Meanwhile, the owners of many older centers are giving their properties a face-lift in order to compete. However, higher tax and insurance premiums are cutting into the profit margins for both retail owners and their tenants.

“As the housing market has slowed, we’re seeing fewer new strip malls opening,” says Sandelli. “However, major malls and power centers are coming back, and the retail market is very stable right now.”

Lewis M. Goodkin is president of Goodkin Consulting in Miami.