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Warehouse glut
Warehouses and distribution buildings in Lee County have seen vacancies surge as the housing bust and declining consumer spending force companies to retrench. Lee County government aggravated the situation by raising taxes on new construction.
There's perhaps no more visible example of the effects of the housing bust on businesses than Metro Parkway in Fort Myers.
During the residential real estate boom, the construction trades gobbled up new warehouses and distribution facilities on this once-bustling stretch of road. Today, giant "for lease" and "for sale" signs compete for attention.
Spurred by ultra-low vacancies and surging rents, developers rushed to build new industrial buildings during the boom. Lee County commissioners, oblivious to the impending downturn, tripled taxes on new construction to pay for roads in February 2007 and developers rushed to beat the tax-increase deadline by erecting more buildings than the market could absorb.
The result today is a glut of industrial space throughout Lee County that many brokers don't see getting absorbed anytime soon. "Metro Parkway is the least of our problems," says Todd Holman, an industrial specialist with Fort Myers brokerage Woodyard & Associates. "When you get off the main drag it's even worse." Out-of-the-way industrial parks along Interstate 75 and Alico Road are particularly hard-hit, he says.
According to data compiled by CB Richard Ellis in Fort Myers, vacancies in industrial buildings have jumped to 11.1% in the third quarter from 7.3% in the same quarter a year ago. Meanwhile, rents net of expenses have fallen 14% to $7.41 in the same one-year period. Overall, rents have dropped 40% to 50% from their peak two years ago, Holman estimates.
For example, Bob White, an industrial broker in Fort Myers, says he recently learned that a tenant leased 4,000 square feet in the Billy Creek industrial park for $7 per square foot, including expenses. A couple of years ago, rents in that park cost $9 per square foot plus $3 for expenses such as taxes and common-area maintenance.
"I had a major distributor that wanted 60,000 square feet," says White. Two years ago, there was nothing available but today there are five different buildings. Landlords are telling White they'll work hard to make a deal: "You put something on the table and we'll get real," they tell him.
At the same time, construction of new industrial space continues to flood the market. Developers rushed to beat the February 2007 tax increase and then got bogged down by the county's notoriously slow permitting process. Many of these buildings are coming out of the ground now, some without tenants lined up.
Of course, bad news for landlords is good news for tenants. But there aren't many tenants looking for space. Those that seek space are existing businesses that are downsizing and many are related to the housing industry, from furniture dealers to tile companies.
The demand for industrial space lags residential housing by about a year, both going into a recession and coming out of it. With no rebound in sight for the housing market, it will be years before all the extra industrial space in Lee County gets absorbed, some brokers say.
And when the economy does recover, businesses will be cautious about expanding or relocating to Fort Myers. "The guys who survive will have the scars," Holman says.
-Jean Gruss
BY THE NUMBERS
Warehouse weakness
Vacancy rates have risen and rental rates have dropped for industrial warehouse space in Lee County, according to data compiled by CB Richard Ellis. The rush to beat a tax increase contributed to the surge in new construction this year and last year.
Vacancy SF under Average rental
Period Total SF Vacant SF rate construction rate psf (NNN)
Q3 2008 31,570,803 3,503,368 11.1% 397,925 $7.41
Q3 2007 30,477,251 2,219,001 7.3% 753,845 $8.61
Source: CB Richard Ellis
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