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Charlotte-Lee-Collier
Business Observer Friday, Jul. 25, 2014 6 years ago

Trades are Back

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Warehouses and other industrial buildings are filling up with construction trades as homebuilding recovers in the Fort Myers and Naples areas.
by: Jean Gruss Contributing Writer

When Eastern Metal Supply expanded a few years ago into 60,000 square feet of existing industrial space in Fort Myers, owner Greg Weekes thought the football-sized building would easily accommodate his company's growth here.

But the recovery turned out to be a lot stronger than many people estimated. “A lot of the building is coming back,” Weekes says. “The economy has picked up.”

Now, Chris-Tel Construction is building a 172,000-square-foot facility for Eastern Metal Supply, which has plans to add another 80,000 square feet off Alico Road in Fort Myers.

“The timing couldn't be better,” says Weekes, whose company supplies aluminum to the construction industry for everything from handrails to hurricane shutters.

As the homebuilding industry continues to recover, so have the trades that supply it: electricians, plumbers, roofers and countless others. These tenants have traditionally been the backbone tenants of the industrial warehouse space in the Fort Myers area, but they left in droves during the recession.

Now, they're back.

“We're starting to see some of the supply guys that left coming back,” says Jerry Messonnier, principal with commercial real estate brokerage Lee & Associates in Fort Myers.

“The industrial market is getting better and it's getting better faster because of the increase in residential construction,” says Stan Stouder, partner with CRE Consultants in Fort Myers. “For the first time in eight years we're getting large users from out of the market. That's big news.”

According to market tracker CoStar Group, the vacancy rate in warehouse buildings in the three-county area of Charlotte, Collier and Lee counties now stands at 7%. That's down more than two percentage points from the 9.2% at this time in 2012.

Companies like Eastern Metal Supply that need large blocks of space will likely be forced to build their own because there are few such spaces left. “We looked at a 100,000-square-foot warehouse in the area but there was nowhere to expand,” says Weekes.

“We're running out of inventory in areas where people want to be,” says Todd Holman, sales and leasing associate with Woodyard & Associates in Fort Myers. This includes Alico Road, Metro Parkway and other areas close to Interstate 75.

Room for growth
While the vacancy rate has declined, rents haven't yet risen to the point where it makes sense for a developer to build a speculative building. The asking rent for a newer building is about $5.25 per square foot, brokers estimate, and that's short of the $6 per square foot or more that developers need to build today.

Rents crashed from the $9 range, net of common area maintenance, taxes and insurance, during the boom to $3 including those extras during the bust. “We've spent a lot of quality time in the last 18 months building our way back to a stable area of lease rates and occupancies,” says Messonnier. “Most of the nicer stuff is already gone.”

The activity in warehouse space has been in the buying and selling of older buildings, as banks foreclosed on many of them during the bust. “Since the bubble, we've been cycling through a lot of distressed assets in general,” says Messonnier.

“We've washed through most of the bank foreclosures,” says Holman. Now, he says, those buildings are starting to fill up with tenants taking advantage or relatively low rates. “I think we're entering a shortage cycle now because lease rates are still somewhat low,” Holman says.

There are locations where there's more space available, but those tend to be in places like the older areas of Fort Myers where buildings are economically obsolete because they can't accommodate today's trucks and ceilings aren't high enough.

“Really, what's holding industrial back is the construction cost of new product,” Holman says. For example, existing buildings are still selling for about half of what it costs to build new.

And Eastern Metal Supply's Weekes warns that taxes on new construction may threaten future projects such as his. Lee County commissioners have temporarily discounted so-called “impact fees” by 80% and Weekes says it would have cost his company $1 million at the previous elevated rates. “That would've been a big deterrent,” he cautions.

By the numbers
The warehouse market in Charlotte, Collier and Lee counties has seen vacancies decline in the last two years as building trades return. Homebuilding activity has increased, attracting plumbers, roofers, electricians and others back to the region to fill empty warehouse space. The vacancy rate in warehouse buildings fell from 9.2% in the second quarter of 2012 to 7% in the second quarter of 2014, according to market tracker CoStar Group. Rents have crept up over the period from $5.17 to $5.65 per square foot.

Market #buildings %Vacant Asking rent
Charlotte/Collier/Lee 3,224 7% $5.65
Charlotte County 405 5.1% $5.73
Cape Coral 310 4.1% $6.39
City of Fort Myers 627 10.3% $4.53
East Naples 405 4.5% $7.92
North Naples 412 3% $8.07
South Fort Myers 702 6.1% $5.40
Source: CoStar Group

Executive Summary
Industry. Commercial real estate Trend. Warehouse space is filling up Key. Rents need to rise further before new speculative construction can begin.

Warehouse of Weed
Warehouse space has gotten a lot of attention lately because of speculation that marijuana operators might go on a leasing spree to grow and distribute the crop if it's legalized in Florida.

Already, there are reports that brokers have leased more than 1 million square feet of industrial space to pot growers and distributors in the Denver area since Colorado legalized marijuana.

But brokers in Fort Myers are leery of the hype. “Most landlords would probably rather have a lumberyard,” says Todd Holman, sales and leasing associate with Woodyard & Associates in Fort Myers.

Holman compares the marijuana business to the boom in electronic cigarettes. “I turned most of them away because I can't have my landlord spend $15,000 on a buildout and commissions and finding out those guys can't make it,” he says. “Almost every one of them that opened up has closed down.”

What's more, Holman says it's politically controversial. “The government can destroy the business, they're picking winners and losers,” he says.

Although it's a booming business in Denver, some brokers say marijuana growers likely would pick a more central location like Orlando, closer to large population centers. The Fort Myers area would not be considered a major market.

“I don't see that as a near-term bankable tenancy, but absolutely we've chortled about that,” says Stan Stouder, partner with CRE Consultants in Fort Myers. Besides, he says, “It's still illegal to grow weed in Florida.”

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