After a strong 2019 in which the region’s commercial real estate sectors displayed tremendous — and in some cases gravity-defying — growth, the industry along the Gulf Coast appears poised for another significant year across all sectors, experts say.
From apartments to industrial space, population growth, employment gains and transformational socio-economic shifts are expected to lift commercial real estate property types again in the coming year.
“It’s anticipated that the region in 2020 will once again experience really high population growth, which would further perpetuate a very healthy and robust property market,” says Danny Rice, managing director at commercial real estate brokerage firm Colliers International Tampa Bay, Central and Southwest Florida.
“Across the spectrum, every commercial real estate sector is hot in its own way.”
That momentum, in turn, combined with ample global capital available for property purchases, is likely to further fuel investor appetites for everything from fulfillment centers to apartment complexes to hotels, experts note.
“I think you’re going to see an unprecedented influx of investment capital coming into this state and this region in the coming year,” says Scott Garlick, managing principal of commercial real estate brokerage firm Cushman & Wakefield’s Tampa office. “And that’s because Tampa is becoming the live-work-play environment that people have been talking about for the past 15 years.”
Along the Gulf Coast, much of the economic momentum in 2020 will once again be concentrated in Tampa, where an employment, tourism and population surge has occurred since 2014 and boosted every facet of real estate.
“There just aren’t a lot of weaknesses in the entire Tampa Bay market,” says Brian Alford, director of market analytics in Central and West Florida for CoStar Group Inc., a commercial real estate research firm.
As a result, developers in the Tampa area have embarked on an office development spree on a scale unseen in the past two decades, the result of shrinking vacancies, rising rental rates and anticipated demand for new space.
“There’s more than two million square feet of new office space in the Tampa area that’s under construction or there’s been a ground breaking, and while that’s a lot for the market over the past 10 to 20 years, it’s a fraction compared to the rest of the country over that period,” says Alford.
“Vacancies are at a record low and there’s pent-up demand,” he adds. “And because a lot of these projects won’t deliver until 2021, I think area rent growth will continue to be among the best in the country.”
Garlick and others say Strategic Property Partners’ 58-acre Water Street Tampa project has begun several new office buildings that could garner considerable interest in the coming year — despite asking rental rates in the mid-$50 range.
“They have interest that could result in them being 60% pre-leased,” Garlick says. “If that occurs, or even anywhere close, it will demonstrate that there’s clearly demand for that high-end product.”
The office development wave pales in comparison, however, to the growth in multifamily rental projects and industrial space, which has been impacted by online shopping and changes in the way retailers and logistics firms view warehouses as part of their supply chains.
“It’s tough to say whether 2019 was the year of the multifamily or the industrial project, because both had phenomenal performances,” Alford says. “I can’t think of a single negative industrial metric. Rent growth is up near a record, the area is experiencing among its lowest vacancies ever and investment sales are at record highs.
“The only possible concern is in the Interstate 4 Corridor, which could be susceptible to oversupply, though the answer is probably not,” he notes.
“In 2020, I think you’ll see a lot more sizeable industrial deals, even with all the new product that’s been announced or has come online recently,” he says. “And that’s because industrial and retail are really coming together in a transformational way.”
Industrial space also will continue to thrive in Southwest Florida’s three-county area, says Cushman & Wakefield | Commercial Property Southwest Florida CEO Gary Tasman.
“Vacancy rates have declined in Lee County, in particular, and that’s been very positive for the county as a whole,” Tasman says. “Tenants want to be here, and there’s a fair amount of industrial land available for new development, so I think you’ll see opportunities in that arena in the coming year.”
Tasman says he’s aware of several potential build-to-suit, office or industrial projects that could result in projects between 30,000 square feet and 100,000 square feet.
Multifamily development also will continue to be robust throughout the Gulf Coast, Tasman and others say.
“I see multifamily as a bright spot in development for awhile yet,” he says. “There’s still a deficit of multifamily rental units coming online in Lee, and if they can find land available in Collier, developers are eyeing it for apartments.”
The same holds true in Tampa, St. Petersburg and the surrounding area.
“A lot of investors and developers are still looking to get into the apartment space in the Tampa Bay area,” Rice says. “And while it’s sometimes challenging to figure out who’s occupying all of these new units and how they’re affording them, if you look closely, most all of the projects are full, and I don’t see the multifamily rental market slowing down at all in 2020.
“There’s enough population growth to keep the momentum going.”
CoStar’s Alford notes that in 2019, a record $3.4 billion worth of apartment investment sales occurred in the Tampa area. He doubts that level of activity will continue this year, but not because of lack of desire.
“The fundamentals remain in place,” he says. “I don’t see any change there in 2020, though we may have seen peak investment activity in 2019 simply because there’s not the available inventory. Still, there’s investor demand.”
Alford cautions that apartments in both Sarasota and the Fort Myers area, however, could experience softening in 2020, the result of abundant new supply that has pushed vacancies over 10% in both submarkets.
“There’s been unprecedented building levels there in recent years, and it seems unlikely that vacancy rates will come down significantly anytime soon,” Alford says. “The danger is so much new supply can drag down the entire area.”
But he notes that population growth in both cities continues to buoy investor and developer optimism alike.
Perhaps the only significant red flag overall are rising costs for construction materials and skilled labor, which together could shave profit margins or hike rental rates. In some cases, tenants have begun taking on the costs of building out their space rather than amortizing the expense over the life of a lease, as is common, Rice says.
“Construction material costs have stabilized largely over the past year but labor costs have gone up astronomically across the board,” Rice adds.
Even so, the overriding sentiment remains positive.
“All asset classes in the Tampa Bay area should benefit from the current momentum through 2020,” Garlick says. “The question is really what will the glide path be beyond this year?
“I’m very bullish about the environment and the attitude that’s present going into 2020.”