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If Randy Henderson's calculations are correct, downtown Fort Myers could see another $450 million worth of commercial investment in the next three years.
Like Tampa, St. Petersburg and Sarasota, Fort Myers is no exception to the revivals of downtowns throughout the state. “This next 36 months will push us to over $1 billion in a decade,” says Henderson, the mayor of the city who is also a real estate investor and developer.
“I'm putting my own money where my mouth is,” Henderson says. “I'm very comfortable doing it.”
Henderson's upbeat tone kicked off the CCIM Commercial Real Estate Outlook Conference in Fort Myers recently. Despite the gathering clouds of slower economic growth around the globe, commercial real estate experts remained upbeat about 2016 in Southwest Florida.
Indeed, population growth combined with restrained construction and conservative lending have boosted occupancies and rental rates in most commercial properties in the Gulf Coast region.
The glut of empty space that plagued the region during the downturn has dissipated, and landlords are offering fewer incentives than they were during the downturn as office space is being absorbed.
Despite improving conditions, developers have remained conservative about speculative construction. “We're not significantly overbuilding,” says Ray Sandelli, managing partner at CRE Consultants in Fort Myers.
The positive trends driven by employment and migration in Southwest Florida haven't gone unnoticed. “We have a lot of institutional investors in Florida,” says Sandelli. “They're buying portfolios.”
Indeed, investors are coming from all over the world, especially as growth slows overseas. “Real estate is a global product now,” says Michael Jonas, managing director of Capstone Valuation Advisors in Naples. “We're on the map for sure.”
Still, an economic slowdown may be on the horizon. “We're definitely going to see the market pull back, but we don't know when,” says Todd Barfield, regional private banking manager with Wells Fargo Private Bank. “The biggest challenge in 2016 will be rising interest rates.”
Some forecasts suggest the five-year-old recovery may be closer to an end. “We're coming to the end of a typical cycle,” says Michael Timmerman, principal of MJT Realty Economic Advisors, who notes that most expansion cycles last six to seven years. “Fundamentally we're in good shape, but we need to be cognizant of timing.”
Industrial darlings
Warehouse and distribution space is at a premium and some suggest that new development could begin this year. That's because construction firms are filling up empty space and a growing population will need more goods delivered.
“We're going to see more of a need for that fulfillment and distribution center,” says Gerald Hendry, principal with Maxwell, Hendry & Simmons in Fort Myers.
For example, in the Gateway area of Fort Myers, there's only one space available for greater than 10,000 square feet. “We have very limited choices in that range,” says Hendry. “That's going to cause rates to go up.”
It's not just big spaces that are in demand. Smaller users of 5,000 to 10,000 square feet who need a yard to park trucks are having trouble finding space, too. “We're lacking in that,” says Hendry.
Charlotte County has attracted industrial users because it has more available land. For example, Cheney Brothers recently built a massive food distribution center that hugs Interstate 75 near the Punta Gorda Airport. “We have a very small supply of available space,” says Steven Gant, broker of Riverside Realty Services.
The industrial numbers show overall vacancies have dipped into the single digits, according to the latest fourth-quarter data from CoStar Group. For example, in land-constrained Collier County, the overall industrial vacancy rate is just 2.9% and quoted rents are coming close to the $9-per-square-foot mark. Meanwhile, Charlotte's 3.8% and Lee's 6.9% vacancy rates mean rents likely will keep rising to the point where new development makes financial sense.
More shops
Meanwhile, shops are filling up and construction companies are building new restaurants and gas stations to satisfy a growing population. “We're seeing a lot of retail activity,” says Hendry. “That seems to be a hot topic.”
In Lee County, the intersection of Alico Road and Interstate 75 has become a huge draw for retailers because of its proximity to two regional malls and Florida Gulf Coast University. “That's become our Main and Main,” Hendry says.
In Collier, recent sales of high-end shopping centers have commanded prices in excess of $500 a square foot. But even small, well-located centers have attracted top dollar. Residential growth on the Immokalee Road corridor east of I-75 has attracted additional retail. “It's opening up a whole new world out there,” says Sandelli.
Total retail vacancy rates have fallen into the mid-single-digits with Collier County being the tightest market with a 6.2% vacancy rate. Quoted average rents in Collier are 38% higher than in neighboring Lee County.
Office bright spots
Office space has been a laggard in the recovery, but space is filling up in most areas. Overall, the region's office vacancy stands at 10.4%, down from the peak of 15.9% in 2011, according to CoStar.
But the office market may be healthier than the numbers suggest. Downtown Fort Myers reports a 15% vacancy in office space, for example, but Hendry says it's a different picture when you strip out obsolete space. “Class A office space is nonexistent,” Hendry says. “Downtown is one of the hottest markets in Lee County.”
Indeed, the urban feel attracts companies whose employees work within walking distance of shops and restaurants and nightlife. What's more, the county's government and courts are located downtown and new residential developments have been built along the riverfront, breathing new life into the area.
Areas such as Bonita Springs and Estero in South Lee County that reported office vacancies in the 30% range during the downturn are seeing substantial improvement, too. Bonita Springs, located halfway between Fort Myers and Naples in South Lee County, has seen its office vacancy shrink by half since the recession to 16.3% in the fourth quarter, according to CoStar.
In Collier County, new development is underway as top-quality office space fills up. With an overall vacancy rate of 9.1% and average asking rents north of $20 a square foot, Collier is ahead of Lee on the office market.
Meanwhile, office space designed for physicians is also in demand because of the growth of the aging population. “Medical in most markets continues to be strong,” says Sandelli.
New corporate users have gobbled up space throughout the region. “Hertz is a key element in the market,” says Sandelli, referring to the relocation of the rental car giant's headquarters to Estero from New Jersey about three years ago. The economic development coup put the region on the map for corporate users.
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