The National Association of Realtors has recently held its annual conference in Orlando. Tony Veldkamp, President, Realtor Association of Sarasota and Manatee in 2022, welcomed 8,500 members at this event. The five-day conference featured meetings on management, educational opportunities, and networking.
For Mr. Veldkamp, the favorite part was the presentation on Renewal of the Commercial Property Market by Lawrence Yun, Chief Economist at National Association of Realtors. He shared very practical and direct observations and advice.
Dr. Yun pointed out that the value of commercial properties was somewhat reducing nationwide, as capitalization rates and net profits divided by the purchasing price were not aligned with the rising loan interest rates. This problem affected investors in commercial units who needed to refinance their property. There should be a corresponding spread between interest rates and capitalization rates, and as it reduced, the value was lowering. However, the rapidly growing number of jobs continues to keep prices from falling in some markets, such as Manatee and Sarasota.
Commercial property can be classified into five key groups: office buildings, apartment blocks, industrial property, retail outlets, and land plots. Dr. Yun noted that the prices of office properties are reducing the most all over the country as the vacancy rate is increasing. However, Florida’s high value of land and construction costs, as well as its strong labor market, causes a shortage of office space in some locations of Manatee-Sarasota. As a result, the rents are starting to grow and the cost per square meter is reaching a historical high.
Multi-family houses that offer buy-to-rent properties are extremely popular in the market. They were marked as the best inflation hedge and the most stable sector in the commercial property market over the past 40 – 50 years. It is consequently very challenging to find an investment asset here – both in Florida and across the USA.
Industrial properties are another strong sector both at the local and national level. Rentals and sales prices have almost doubled over the past few years and numerous new projects are being built all over Florida. Inflation, however, is expected to put a damper on e-commerce, so this segment may face excessive supply in 2023, when many of the currently off-plan projects are completed.
One of the currently underestimated segments, according to Dr. Yun, is the retail sector. Investors have a great opportunity to purchase old retail outlets in prime locations to reequip them for the new generation of retail stores or personal services.
Whatever type of commercial units the investor prefers, the market of Southwest Florida remains extremely attractive. The state’s economy continues to grow, as new residents arrive. The prices of local housing are increasing and the supply is still below the demand.
Although some sectors of commercial property are going to experience a slowdown next year due to higher interest rates, investors will have numerous opportunities once the rates stabilize.