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Commercial Real Estate
Business Observer Thursday, Jan. 6, 2022 11 months ago

Two for 2022: A look at commercial real estate in the new year

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The hotter than hot market might show signs of cooling off in 2022 — with dwindling inventory a chief concern among several industry experts.
by: Louis Llovio Commercial Real Estate Editor

That start of a new year comes with optimism, with feelings that anything is possible and change is on the horizon.

But the reality, once the champagne wears off, is the new year is just a designation on the calendar, a continuation of the previous year. That designation, though, is a powerful one, allowing for both reflection and for a look forward.

With that in mind, the Business Observer reached out to five commercial real estate experts in the region with two questions for 2022. The first question: As we head into the new year, what’s your biggest concern and what can you do to address it? The second question: What are your projections/predictions for the market in 2022? Edited excerpts: 

Kyle Koller, field research manager for Florida at CBRE, Tampa

Concerns: Disruption from COVID-19 variants (Omicron and others). While Tampa, and Florida in general, have been resilient to COVID-19’s impacts on commercial real estate, with new-to-market interest and relatively mild lockdowns, real estate decisions made at the corporate level for larger firms could still impact the local market if there are additional outbreaks. However, commercial real estate decisions as a response to new variants would not be as drastic as the initial pandemic as the firms more apt to hybrid or remote work environments have already started to make those adjustments to their real estate footprints.   

Projections/Predictions: Barring major disruption from COVID-19 variants or inflation, Tampa commercial real estate markets are poised to have an active 2022. Industrial and multifamily momentum continues to thrive across the region, with office-using job growth and the migration of people, jobs and firms to Tampa also bolstering office and retail sectors. We continue to see rental rate appreciation and cap rate compression across asset classes, particularly outperforming average U.S. office fundamentals.

Matt Price, CEO and partner at Seagate Development Group, Fort Myers

Concerns: As we head into 2022, cost of goods and timing delays, caused by both supply chain and workforce issues, are top of mind for every business owner. Setting customers’ expectations with consistent communication is key to succeeding in this new reality.

Projections/Predictions: People are moving to Florida and will continue to do so for the foreseeable future. This demand, along with limited supply, leads us to be cautiously optimistic that 2022 will be a strong year for commercial and residential construction and development in Southwest Florida. 

Danny Rice, executive managing director, market leader central and west Florida at Colliers, Tampa

Concerns: There’s a couple of concerns. I’m not sure I’d call them major concerns, but they’re things to watch out for. Of course, the pandemic is always the first one top of mind to me and to our clients and to, I think, the entire industry. Especially with some of these new variants. I think the pandemic is going to be an ongoing concern we’re all going to have to continue to pay attention to. And the various influences that can happen, whether that’s government regulation, restrictions that get put back into place; whether that’s health issues for our own employees, for clients, for other businesses that are out there.

Kind of similar, almost segueing on that same topic of concern, is there is a labor challenge out there. Hiring is becoming harder and harder. So, yes, we have great growth happening in Florida, but if you don’t have the employee base or if you don’t have individuals that can get hired to take a new retail, restaurant job at a new location, if you don’t have the people, you can’t open. Inflation is probably another one. It’s talked about often. It’s going to put pressure on how the feds are going to handle that. Are interest rates going to tick up after being very low for a long period of time, which will affect investment activity and buying power? And the last one I would say is just overall supply chain challenges. But I think that will start to work itself out over the next six to 12 months.

Projections/Predictions: I think that’s a fun one when you think of ’21 heading into ’22. I think, generally speaking, the first half of ’22 is going to feel like the second half of ’21. I think the activity level is going to stay strong. But I think we also have to be realistic. Where ’21 was a little bit of a catch-up game for a lot of people — for investors, for tenants, for businesses where it’s kind of like a catch up for the delays that happened in 2020 and getting through the shock and awe of the pandemic. Once we got through the 2020 period, there was a little bit of catch up, which brought ’21 higher activity than what would normally be the case even in a good market.

So, we might see in the second half of 2022 a slowdown. But it’s not necessarily a slowdown, but a leveling off of activity. As businesses get caught back up with their growth plans, they’ll get in a more normal state of mind. So, I think we’ll see a very strong market in 2022 through all asset types. The one resurgence that’s going to continue to happen is office space. The work-from-home that has happened in the past 12 to 24 months is starting to shift back to where employees are beginning to come back more and more to the office. I think a good prediction there is that we’ll see that growing further.   

Julia Silva, managing director, industrial JLL, Tampa

Concerns: My biggest concern for the Tampa Bay area is the scarcity of available land to develop additional industrial real estate inventory. While we anticipate strong absorption of new product, our vacancy rates should remain at record lows, which will drive rental rates higher for users and will ultimately be passed through to the consumer. A possible solution is partnering with public officials to provide an efficient use of land between the easternmost part of Hillsborough County and Plant City as part of a long-range comprehensive plan for job growth and supply chain effectiveness. 

Projections/Predictions: Market fundamentals should remain tight, which will spur industrial development in emerging markets such as Pasco County, Hernando County and all the way up to Ocala, where investors and developers are clamoring for positions. The same holds true for counties south of Hillsborough and Pinellas, as we are seeing strong investor activity in the Bradenton/Manatee/Sarasota areas.

Justin Thibaut, president at LSI Cos., Fort Myers

Concerns: Simply put, it’s inventory. That’s top of mind right now for all real estate professionals, not just commercial real estate but residential as well. There are a couple of specific asset classes I think are facing the most pressure as far as inventory, available properties. No. 1 being income producing properties. Right now there is way more capital out there than assets to be purchased. We see that as we head into the end of 2021. I think that’s only going to get exacerbated into 2022. Because what we’re seeing is downward pressure on cap rates because of the lack of inventory. So, any income producing opportunities that become available in the market are moving very quickly and they’re selling at very aggressively low cap rates. I expect that trend to continue. Because of that, I expect rising rates as far as rents and the exit pricing on some of these properties. That’s, really, to put it bluntly, my biggest concern. Inventory. Because right here in this office we have a lot more buyers than sellers right now.  

Projections/Predictions: There’s one element looming out there, that’s starting back up. That’s foreign investment. Now that travel is opening back up, we’re starting to see that element creep back in, but we didn’t see that for a long time. So that’s just one more added pressure to what we started with, which is capital out there with a lack of inventory. I think foreign investment is going to be a topic on everybody’s mind over the next six months because, you haven’t seen much of it, but there’s a lot of money out there that’s got its eyes on Southwest Florida.

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