Commercial Properties Poised for Gains
As 2011 comes to a close most of us are probably more than ready to put that year behind us, as the business environment has been nothing but challenging!…better yet most hope to forget the volatile years 2009 and 2010 (might as well throw in 2008 while you’re at it too)! For the past several years business decision making had become lethargic, anemic at best. Most decisions have simply been held captive by the uncertainty of the economy, the future, and rightfully frightened by the ever-expanding role of government and bureaucracy. The commercial real estate scene in Southwest Florida has been likewise stymied by such influences, as well as severely impacted by the up swelling of bank foreclosures. Even the most solid of properties were cast negatively by such long shadows.
Fortunately in late 2010 and early 2011 we all began the slow march out of that deep chasm. Solid improvements have been made throughout most categories of commercial real estate: office, retail, industrial, apartments. This holds true throughout Southwest Florida, more so for Naples and Collier County, and to a lesser extent in Lee County. Even land sales began to show life, as some hardy developers began to think about dipping their toes in the market once again.
I think the days of deep discounts and distressed market conditions are rapidly coming to a close. Those that think they’ll wait until the ‘other shoe drops’ may just find themselves waiting another seven or ten years until the next business cycle once again spirals downwards. Those bank owned properties that had at least some level of viable marketability have since been snapped up, leaving the truly ill-conceived to still fester. That ‘play’ is over, if that was your real estate strategy and you didn’t act, then you’re probably just too late. That doesn’t mean that an occasional distress situation won’t arise, but this time there’s plenty of buyers chasing such opportunities. Likewise, both the retail and office space inventories have tightened up. The industrial market is still the laggard. The best properties have been snapped up by a very large pool of investment money. Apartment complexes have been red hot and well anchored shopping centers and office buildings command healthy 7-8% cap rates.
In the great recession, the sellers and landlords of properties substantially lacked all pricing power, with market rent levels in a free fall…landlords were cutting rents in efforts of helping retain some semblance of occupancy and prop up their tenants. 2011 has since brought the pricing back to some sense of equilibrium. Gone are the days of 2006 rents and values (the ‘go-go’ years), think 2004 (pre-spike). Traditional valuations, underwriting, and expectations have now come back into vogue. Rental values as well as property values are of course directly related to the health of their tenants or occupants. Fortunately the retailers, restaurateurs, and businesses that I deal with have seen modest year-over-year sales gains for both 2010 and 2011, in the range of 10% to an impressive 20+%. Although such year-over-year gains are indeed impressive, do keep in mind that it takes a 100% gain in business to overcome a 50% drop.
What all this means is that we are looking to continue to see healthy improvements to the commercial real estate scene in Southwest Florida for 2012 and probably at least several years thereafter. I am indeed encouraged. With balance and reasonableness coming back into the market, fair deals should be enjoyed by both sides of the table: landlords and property owners, as well as tenants and investor/buyers.
Dougall McCorkle, MBA
Sales Associate and Commercial Specialist
Premier Commercial, Inc., Licensed Real Estate Brokers
Direct: 239.213.7234
Cell: 239.860.3368
dougall@premiermail.net