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Expansion Tempered by Caution
By David R. Corder
Associate Editor
Florida executive Lee E. Arnold Jr. expects the New Year to bring the largest gains in his companyis 32-year history. Thatis good news for the Tampa Bay area, because the chairman of Clearwateris Colliers Arnold commercial real estate services attributes much of this growth to the regionis economic health.
iOur first quarter of pending transactions is as large or larger than at any time in our history,i says Arnold, whose firm brokered about $350 million in commercial real estate deals in 2003. iPart of that has to do with the size and growth of the company, but I also think the national capital markets have discovered the Tampa Bay area. I think they see the robust and diverse job growth.i
This is good news, indeed. And it comes from a credible source: Arnold was one of the driving forces that created the Tampa Bay Partnership, a regional economic development marketing organization. His voice carries weight among other executives and politicians as chairman of the Florida Council of 100is water management task force. Florida Trend magazine recently selected him as one of the stateis most influential corporate executives. So it might be a good idea to listen closely when he says the region is on the brink of an economic upturn that could equal or exceed other periods of prosperity the region has experienced.
iWe have incredible momentum at this point in time,i he says. iTo think out 10 years from now and look at the last 10 years and see the difference in the community infrastructure, the cooperation across (government) boundaries, a new leadership generation, the funding mechanisms to support it and the community that recognizes the importance of continued well-managed growth, well, those are all reasons to be extremely positive.i
Positive indicators
To an extent, the regionis key economic indicators support Arnoldis optimism. In 2004, the region escaped the doldrums that characterized the first three years of the century.
iWhat we foresee in 2005 is relatively stable growth, just off the peak level we saw in 2004,i says Stanley Geberer, a senior associate at Orlandois Fishkind & Associates Inc., one of the stateis leading economic consulting firms.
Although optimistic, Geberer tempers his enthusiasm with three concerns: rising interest rates, the falling dollar and higher oil prices. He says each of these national indicators impacts the regionis growth in terms of population, jobs, housing starts and commercial construction.
iA lot of the stimulus we had in the economy this year, in 2004, due to the ramp up in military spending and effects of (federal) tax cuts, will have rippled all the way through the economy and no longer provide the same kind of boost to (the regionis) economic performance,i he says. iThe economy starts to see the effects of that in the second half of 2005. Then the economy starts to feel it a little more in 2006 through slower population and employment growth and rising unemployment rates.i
Despite that possibility, Geberer is not sounding warning bells. iAll that being said, itis not a recession,i he adds. iItis sort of a mild downward cycle.i
So thatis why Geberer refers to the regionis economic forecast for the next two years as stable.
iStability in Florida means strong and steady growth and lots of new jobs,i he adds. iThereis a lot of new business formation, particularly in the business service and high-tech area, that doesnit really show up in the numbers because most of those companies are self-employed or sole proprietors. Theyire missed in the employment figures. Itis picked up in the income numbers.i
In fact, the latest Fishkind iEconocasti report for the Tampa-St. Petersburg-Clearwater metropolitan statistical area, which includes Pasco and Hernando counties, projects a 6.8% increase to about $91.1 billion in income this new year. Thatis about 17 points greater than the rate of income growth that the economic consulting firm forecast for 2004.
Statistical anomalies
The current prime interest rate, the rate U.S. banks charge their best customers, has risen a full percent from the record low of 4% during November 2003 through July this year.
As of Dec. 28, it took $1.36 to purchase one Euro dollar. It took $1.98 in U.S. currency to purchase one British pound.
Crude oil sold at $41.32 a barrel as of Dec. 27 on the New York Mercantile Exchange Thatis up from the $32.40 a barrel on Dec. 29 a year ago.
The cost increase associated with each of those national indicators invariably has an impact on the rate of the regionis population growth, Geberer says. In other words, he says, the regionis population will increase at a rate slightly less than in each of the past four years.
iThatis still a lot of growth,i Geberer says. iWeire adding 40,000 net new residents to the metropolitan statistical area.i
The Fishkind report forecast a population increase of 47,772 in 2004, up about 1.83% from the 46,913 new residents projected for 2003. In 2005, however, the report forecasts a population increase of only 43,316. Thatis about a 9.3% decrease in number of net new residents who moved to the region in 2004. In 2006, the report forecast about a 6.76% decrease in the rate of growth or a net of about 40,389 new residents.
iOver the past five to 10 years, weive seen a steady decline in net population growth in Pinellas and a shift in growth from the core counties of Hillsborough and Pinellas to the second-tier counties to the north o Pasco, Hernando and, to an extent, even Citrus,i Geberer says. iIn Pasco and Hernando, the rate of population growth and new development is immense. Thatis whatis driving the growth in the metropolitan area.i
Consequently, any impact in the rate of population growth affects the rate of new job development, Geberer says. But the outlook for the next two years still surpasses the growth recorded from 2001-03.
The Fishkind report projected a net increase of 33,933 new jobs in the region in 2004. Thatis about a 95.1% increase from the forecast of 17,390 net new jobs in 2003. The growth far surpassed the forecast for 2002, which projected a net job loss of 5,538.
In 2005, the Fishkind report forecast a decrease of just less than 1% to about 33,653 net new jobs. The rate of net new jobs should drop even further in 2006 o about 15.4% to 28,472.
iIf you look back at 2002, we lost 5,000 jobs,i Geberer says. iThat compares with (about) a 30,000 job gain (in 2004). Thatis a net difference of 25,000 jobs. So 2005 and 2006 doesnit bring anything like that.i
Impact on construction
Over about the past five years or so, new home construction has reached all-time highs in the Tampa Bay region. Low mortgage interest rates and job growth accounts for much of the growth.
iWeire not just a (call center) back room for the rest of the nation, as we might have been perceived at one time,i Arnold says. iThere is high energy coming out of the University South Florida, especially in research and development and the medical field, and a lot of folks are being employed in higher paying jobs. That fuels the housing market, which fuels the retail market. Then at the same time there is a huge resurgence of development activity in both infrastructure development and new housing product.i
The best example of this resurgence is in the high growth submarkets along the Veterans Expressway and Interstate 75 in northern Hillsborough and in southern Pasco, Arnold says. In particular, he cites the wave of growth taking place along Pascois State Road 52 and State Road 54 corridors.
iPeople find they can get to work (in the metro area) in a reasonable time and live in an affordable home,i he says. iWeire still pumping through affordable housing lot prices in that market with quality housing.i
In its economic report, Fishkind forecast an increase of 19,146 in new single-family housing starts in the region for 2005. Thatis an increase from the 18,575 housing starts forecast for 2004. On the other hand, the Fishkind report forecast a decrease in housing starts in 2006 to about 18,833.
While not as enthusiastic as Arnold, Geberer says the Tampa Bay region still possesses historic characteristics that should shield the region from price pressures at the national level. He cites two specific sources of cash inflow.
iFlorida in general is more resilient than (elsewhere) because of a number of reasons,i he says. iFor one, we still have a lot of retirement income. Thereis a lot tourist influx, which also brings in a lot of cash.i
In other words, when things go bad elsewhere o Floridais growth should continue.
iBy comparison, when things get bad in the national economy itis reflected in Florida as a slowdown rather than negative growth,i he says. iIn New York or Massachusetts, theyire not gaining population; population growth is flat. If interest rates rise sharply, they could lose 5,000 jobs very quickly. We always have a steady demand for new jobs here because we have a steady population growth. That always makes us more resilient.i
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