The Sarasota-Manatee commercial real estatemarket, known for its stability, is on an upswing.
By Sean Roth
Real Estate Editor
One element that keeps Realtors and developers coming to the Sarasota-Manatee county market is the stability of the market, but that trait can be a double-edged sword. When conditions are good they stay good, yet when a market is down, it tends to recover slowly.
Overall, the market forecast for the rest of the year is more of the same.
The office market sector has the lowest demand of the three main commercial vehicles (office, retail and industrial), but indicators show demand is on an upswing. Realtors are seeing large new office buildings coming onto the market and, although low interest rates have held down demand for leased space in general, vacancy rates have declined in most areas.
The retail market is running at a healthy pace gobbling up newer hotspots, primarily along Manatee County's arterial roads: State roads 70 and 64, U.S. 41, Cortez Road and University Parkway. National retailers, such as Wal-Mart Stores Inc. and Target Corp., plan to open stores in the area and retail developers such as Buffalo, N.Y.-based Benderson Development Co. Inc. and Sarasota Casto Southeast, plan to build large-scale retail projects along the Interstate 75 corridor.
Industrial and flex (office/industrial or office /warehouse) space has been the hottest commercial sector of the local market, and demand has increased. Land for industrial/flex space is becoming harder to find, which will likely lead to higher prices and more refurbishment of existing buildings.
Commercial real estate on the beach areas, such as Bradenton Beach, Longboat Key, Siesta Key and Lido Key, is tight and getting worse. Recently, a number of lodging properties, notably the Holiday Inn and Turtle Crawl Inn on Longboat Key and the Half Moon Beach Club on Lido Key, have been converted into condominiums.
Kent Chetlain, a veteran Florida journalist who has covered real estate in the area since 1957, says the conversions are just a matter of economics. "The latest twist is to take the commercial, which once was more valuable, and to make them condominiums," Chetlain says. "The value dictates what eventually develops on the valuable waterfront properties ... and that is just going to continue as it has."
Further, Chetlain says that because available real estate is at such a premium on the islands, retail and office space will continue to remain rare and vacancy rates will remain low.
The Bradenton commercial market is expected to remain static. "We are not expecting a significant change in the next six months," says Bill Blalock, president of the Bradenton-based real estate brokerage Wyman, Green and Blalock Real Estate Inc. "I think we've been fortunate with the amount of residential growth in the area. It has greatly supported and encouraged the commercial retail development."
The five main thoroughfares in Manatee County, S.R. 70, S.R.64, Cortez Road University Parkway and U.S. 41, have all seen growth, such as a new Starbucks/Splash Sun & Fun, at U.S. 41 and Cortez Road, and a new office park on S.R. 64.
"We are extremely strong in all the markets," says David Eckel, owner and president of Bradenton's Wagner Real Estate. " We are seeing vacancies that are historically low. There is a shortage of investment property."
In the downtown areas, vacancy rates are much higher than those in downtown Sarasota or the I-75 Corridor. A survey by the Commercial Investment Division of the Sarasota Board of Realtors found vacancies in the downtown core averaged about 17.67%. "Bradenton properties have been historically higher than in Sarasota," says Joe Hembree, president of the Sarasota-based Hembree & Associates, "But they aren't getting any worse and if anything they have been level."
In addition, Blalock says the higher vacancy rate may also work to the city's advantage. "It may sound contrary, but I think one thing that will help the downtown office market is being able to provide more of a variety of office space within an overall palette. We have a healthy mix in the area. There is new excitement, and we are getting more folks to look at downtown Bradenton. I don't feel like there is that much off the market if you look at it over a 10-year period."
In the area of industrial properties, Bob Kolton, a broker with Michael Saunders & Co. Commercial Division, says demand has been high in Manatee County for a long time, principally at the U.S. 301 intersections. Supply is starting to become an issue, he says, adding, "There is plenty of land out there designated for industrial but the process to get it on-line is painfully slow. With Penn Mar (Whitfield Avenue and U.S. 301) we have been working for two and a half years to get a site plan ... but we keep hitting a brick wall. It's just a constant battle. (Ultimately) this is going to make the existing product just that more valuable. Right now, there are only a couple dozen guys who are willing and who have the money to do (industrial). We will probably see a tremendous increase in prices for existing buildings out there."
In the short term, though, there are enough lots to handle current demand, mainly from property off the U.S. 301 corridor and in the large-scale flex buildings owned by Benderson Development buildings at Sarasota Bradenton Commerce Center, Kolton says, adding, "There will be space available. It just may cost a little more. That's just the cost of doing business."
Parts of downtown Sarasota are in the midst of a resurgence. A number of large mixed-used developments are underway and even more are in the pipeline, but overall, downtown leasing conditions have not changed much. "Downtown office vacancies have been running at about 9% to 12% for the last 12 months," says John Harshman, president of Sarasota's Harshman & Co. Inc.
"I don't see much change in activity level for leasing downtown. Office space needs are more indicative of the national and international market," he says. "As long as interest rates stay where they are - I would expect no change. Sales (on the other hand) have been brisk. This is just a natural occurrence ... just part of the undulations of the economy."
Harshman says the new projects may not impact commercial real estate, the majority of the new developments are high-end condominiums, which don't necessarily translate into more bodies in the downtown area all year round. "Aesthetically we would hope that new buildings would help the face of downtown," he says. "However, we still lack year-round residences and business that create jobs."
Ian Black, president of Ian Black Real Estate and commercial broker for the mixed-use downtown project Five Points Tower, has a more optimistic prediction for downtown commercial real estate.
"I think we are in for a very exciting time in the next six months," Black says. "One of the most important things is we should see the Plaza at Five Points and the Whole Foods projects come out of the ground. I think that speaks volumes for downtown as a thriving commercial location. The fact is if we get both projects into vertical construction, that means we are creating a destination retail area downtown. Outside of restaurants nobody downtown is doing any retail business after 6 p.m."
Hembree says at the very least the new projects will increase demand for downtown commercial property because of all the marketing.
"I think the market is coming back," says Scott Sosso, president of Prudential Palms Realty. "We are still a little bit slow...(but) people are really interested. We are seeing a lot of second-home buyers here. Five years ago people weren't even walking downtown."
"Sales have been good," says Carl Wise, president of Sarasota's Preferred Commercial Inc., "and our leasing of some increments has been good. I think the activity of the Githlers (developers of The Yacht Club, a condominium and marina on Tamiami Trail) has really been a catalyst for the area."
Barry Seidel, president of American Property Group of Sarasota Inc., predicts demand for retail property along Tamiami Trail will stay hot. "What's for sale (on the trail)?" Seidel says, "La Champaign, at 7500 S. (Tamiami) Trail, is the only parcel there and that just came on recently. Where I am in South Trail is becoming furniture row."
Black says the northern-end of the downtown area, principally the Rosemary district, is seeing new business interest, such as recent discussions between condo developer Wayne Morehead of Portofino Enterprises and the Florida West Coast Symphony.
In many respects Lakewood Ranch is an island. With Schroeder-Manatee Ranch Inc. controlling all the initial sales, the master-planned community's commercial vacancy rate is the lowest in the two county area. Both flex/warehouse and office space have a vacancy rate of about 5%, while the retail space is fully leased. John Swart, president of Lakewood Ranch Realty, attributes the vacancy rate to controlled growth, limited supply, location and the rooftops that are already in place (about 3,800 homes so far).
Last year, SMR officials slowed the growth of new office buildings when they perceived there was too much available space - about 140,000 square feet. The decision, around the commencement of the Iraqi war, proved well timed and by March, all but about 40,000 square feet had been absorbed and office production was up again. This year, about 75,000 square feet of additional space will be completed, the smallest amount of new space since the development started in 1997. However, Lakewood Ranch Realty has a deal to complete 226,000 square feet of office space in 2004.
"Everything goes through cycles," Swart says. "We did slow down for a little while there. But we are feeling really good on going. We are having a banner year this year and we should have a boomer year next year."
By March, work will start on mixed-use Main Street area in Lakewood Ranch. Swart predicts that by the time construction starts on the retail project, about 130,000 square feet will be leased. That same month, construction is expected to start on a second medical office building next to the hospital; the first one, Swart says, is leased about 90%.
Also in 2004, Swart expects to see about 100,000 square feet of light, industrial/flex space built. Swart says: "I honestly think we are on a roll as long as interest rates stay low."
The I-75 corridor was mentioned repeatedly as one of the hot areas for commercial interest. The corridor mirrored Lakewood Ranch's decline toward the end of last year and the first part of this year, and then experienced a similar recovery. "If you look east from the central business district," Blalock says, "you will see medical investment in areas previously not invested in before. There is a lot of focus on (commercial) infill like along the arterial roads."
The three cities in southern Sarasota County belong to two main camps: the over and the under-developed.
Six months ago, Jim Walter, a broker with Richardson Kleiber Walter who specializes in South County commercial properties, was wondering how he was going to make it through an a slow year. Now, he wonders what he will do when he runs out of commercial land.
"The first part of the year was really impacted by the war," Walter says. "It was abnormally quiet for the first several months. (But) I have more than made up for that in the last 90 days. Things are very good. We have a real short supply of industrial land. We have just such a limited amount of existing commercial space, period. We are in the shortest supply I have experienced in nearly 20 years."