Although the Southwest Florida real estate remains healthy for now, COVID-19 is casting a long shadow over the future of the market at present
Midway through the 1971 film “Willy Wonka and the Chocolate Factory,” the protagonist, Charlie, and other tourists are taken on a frightening boat ride through the dark.
As gruesome and ominous images flash around the vessel, the movie’s eponymous hero starts singing.
“There’s no earthly way of knowing, which direction we are going,” Gene Wilder’s Willy Wonka sings in the “tunnel of terror” scene.
LSI Cos.’ CEO Randy Thibaut and President Justin Thibaut contend the lyrics in the movie clip represent an apt analogy for the state of Southwest Florida’s real estate market.
“Crazy times, eh?” Randy Thibaut says.
In a virtual presentation of the company’s 10th annual Market Trends presentation, the Thibauts argue that the COVID-19 pandemic briefly derailed the three-county’s region prolonged economic growth cycle this Spring, but that it remains too early to tell whether the deadly virus will usher in a period of sustained disruption and correction.
At least for the first half of this year, however, the residential and commercial real estate markets in Charlotte, Lee and Collier counties have held steady.
Uninterrupted, the 8,789 total residential building permits issued in the first two quarters of 2020 were on pace to eclipse the 15,910 permits pulled last year — though Randy Thibaut believes the market ultimately won’t measure up to 2019’s performance.
Much of the activity is being, or will be, generated by the construction of mammoth new subdivisions such as Founders Square, Hyde Park Village, Timber Creek, Verdana Village and Westport, to name a few. Together, those handful of new communities will contain more than 8,000 single-family homes and add to a robust inventory developed in communities like Ave Maria and elsewhere.
The sale of existing homes also has fared well — to date. Sales were off just 6.4%, to 18,298, in the first six months of 2020 vs. the same period last year. At the same time, prices were actually up as compared to 2019, primarily because fewer homes came on the market.
The elder Thibaut maintains that residents of Northeast states seeking to escape COVID-19 hotspots — together with government interventions like Paycheck Protection Program loans, low interest rates, $1,200 economic stimulus checks to individuals, mortgage forbearances and eviction moratoriums — have helped Southwest Florida, as have builder virtual tours of houses, limited discounting and a reduction in speculative building.
Of greater concern is the region’s apartment market, which has added tens of thousands of new units in recent years to the region and shows little sign of slowing.
In the first half of this year, permits for an additional 2,898 multifamily rental units were issued in the three counties — only 7% less than were issued in all of 2019.
“It’s the one sector that has a lot of lenders, developers and their contractors on the edge of their seats,” Randy Thibaut says.
And while he acknowledges that permits do not always equate to developed projects, he expects to see “aggressive rent incentives” offered to residents over the last half of this year and into 2021.
In the commercial market, Justin Thibaut says Southwest Florida is in the midst of a “shift” in its retail space and hospitality properties, both of which have been hurt badly by the pandemic.
He believes re-invented and updated “drive-ins” could represent the future of fast-casual dining, though overall, retail occupancies have held fast even as rents have declined.
As grocery chains flourish and new offerings by Trader Joe’s, WaWa and others enter the market, “high-touch point” merchants like CineBistro, Top Golf and Dave & Buster’s are continuing to evaluate how to operate in a post-pandemic world.
Industrial real estate, conversely, has fared well in Southwest Florida and elsewhere, as more consumers have turned to online purchasing and related deliveries to try and stave off the virus. Southwest Florida also benefits from the fact that more than 60% of the state’s population live within a three-hour drive.
“Amazon and its online competitors have a better opportunity than ever before to shift the retail environment,” Justin Thibaut says.
Amazon, which has developed a pair of so-called “last mile distribution” facilities in Lee County to meet demand, is also currently converting a former Benderson Development Co. retail site into a fulfillment operation.
Other locations, including the Premier Airport Park near the Southwest Florida International Airport, also have taken advantage of evolving consumer preferences. Premier Airport, for instance, is currently constructing its third industrial building, which will bring its total space to 318,000 square feet. In all, the park is slated to contain more than two million square feet of space at its build out.
The region’s office space, which was hit hard by the last decade’s economic recession, has experienced a “resurgence” of late, especially among healthcare-related build-to-suit projects for the likes of NeoGenomics and Arthrex.
Other major office developments by companies such as Gartner have also added inventory, though Justin Thibaut says it remains too soon to tell how the coronavirus will impact the sector long term in the region.
For now, occupancies have held firm, though average rental rates have fallen slightly.
An even bigger question than the future of office space in Southwest Florida surrounds the region’s hospitality sector.
A surge in tourism and business travel in recent years fueled development of thousands of new hotel rooms. And while construction at some properties, like Tampa-based Mainsail Lodging & Development’s highly anticipated Luminary Hotel in downtown Fort Myers, have continued, others have faltered under the weight of the pandemic.
Most notably, Allegiant Air’s Sunseeker Resort, in Port Charlotte, has suspended construction and all future development until at least the end of next year.
Both Thibauts say that effectively quashing or eliminating COVID-19 remains the Golden Ticket to the future of the region’s real estate health.
“If the virus continues unchecked into the third and fourth quarters of this year, we could see the rug pulled out from us,” Randy Thibaut says. “Everything is dependent on how long COVID continues to impact us.”