As we leave a strong commercial real estate climate of 2013 behind us, 2014 should be even stronger so long as we remain free of any major geo-events that may throw us off the course of continued prosperity. We were fortunate that 2013 was relatively devoid of any derailments, although the ineptness of Washington in dealing with the budget and government shutdowns made things a little dicey in late ’13.
The underlying health of our economy is largely based upon consumer and investor sentiment which, in turn, is well-portrayed in the performance of the stock and bond markets. A positive stock market generally bodes well for the real estate market. Although sometimes when there are wild fluctuations in the stock market or an extremely flat performing stock market, some investors will shift fund allocations to the real estate market instead, believing it may be more stable and provides better returns.
Enough on the macro economics, what about Southwest Florida and the general commercial real estate market?
Walgreens – Marco Island, FL – Buyer Represented by Dougall McCorkle in 2012
In regards to investment or income properties in strong markets nationally, like SW Florida, it is all about yield. Since bank CD’s and money markets pay the investor next to nothing in the way of yields, a large number of investors are seeking the higher yields from real estate. Tired of getting 1% returns in the bank, it is easy to see the attraction of 5.5% or 6% yields from long term rents from national credit tenants like Walgreens or JP Morgan/Chase. As a result, the 2013 boom in single tenant properties (also known as NNN or net properties) is likely to become even more heated up in 2014. Although there are many factors that impact pricing and yields that these properties command in the market place, we saw some yields for top echelon credit deals drop to under 5%. The pressure to keep yields (cap rates) down, and prices up, is going to continue well into 2014. Unfortunately some yield hungry investors will be chasing the illusive yield and lose sight of the underlying risks and characteristics of the tenant and the location. There is a prime example of such a pitfall being marketed here in Naples right now, which will be unnamed so as to remain politically correct (but call me and I’ll spill the beans to the details of why)
Right now there are a disproportionate number of buyers than sellers for income property and it will get even more imbalanced in 2014, which will result in increasing prices and dropping cap rates. Looking for stable properties with cap rates 8% or better?…not in this town unless you are willing to accept a lot of risk and step down in quality! Fortunately the pricing hasn’t gotten out of hand yet, but there is always that risk. As a result it always pays to stick to quality and the underlying intrinsic value of the location. There continues to be properties that come to market (many of them confidentially), but the key to get the deal is speed and cash. I have seen more than one property get gobbled up within days of first coming to market. So being able to understand the market, or aligning with a commercial real estate expert that does, very quickly is vital as there are a lot of sophisticated competitors that do. Cash of course is always king, so having the ability to close on an acquisition without financing (which you can always do post-closing) is often the edge to get deals done.
The most sought after income property category are small strip centers that may sell in the $1-4 million range. It is far easier to find larger deals than these smaller assets, which are of keen interest to the single investor.
Land has started to come back into vogue in a big way. The big national homebuilders have already started to rearm themselves with land inventory in preparation for the next wave of residential growth. At the same time, national retail chains including banks and restaurants are having difficulty in finding sites given scarcity and high land prices. 2014 will see more redevelopment of old buildings as other options dry up. High impact fees in Collier County will be somewhat of a drag, all but taking work force housing and apartment housing out of the picture. Lee County, to the contrary, took the proactive approach of waiving their road impact fees for the short term, making that County much more attractive to many developers.
High Tech Industrial Campus – Naples, FL – Buyer Represented by Dougall McCorkle in 2013
As mentioned in my previous blogs, the industrial warehouse market made a huge resurgence in 2013 and should continue to do very well in 2014. The construction industry is re-inflating locally, so all of those empty metal building warehouses are filling up fast, as are their rental rates and pricing. Easily a 25% rebound in 2013, with more in store for 2014. A larger user (10,000 square feet or more) in this market will find his number of options can be counted on one hand!
Office leasing has been solidly growing in 2013 and will continue to do so in 2014. There will be somewhat of a ‘trickle down’ effect here, where the top quality and best located office buildings will fill up first before going the next tier down. There are perpetual hot and cold spots (North Trail versus East Trail in Naples for example) which will always be the case. The properties that offer strong quality and good locations with competitive pricing will do well. Those caught in the middle will take a while to fill. Our commercial real estate practice has had a strong 2013, assisting tenant and landlords alike.
Retail has also had a strong 2013 and promises to be a good 2014 as well, as vacancies are becoming increasing rare. The first preference has historically been for highly visible, front facing retail spaces along US 41 in North Naples or along the South Trail in Ft. Myers (with particular focus in the Daniels and College Parkway activity nodes). Sub markets will also see continued growth in 2014. We should start to see new in-fill retail developments start to become more active as well.
So if there was any time in our recent history that Southwest Florida was burning on all cylinders it would be right now. We are about to see this area, for better or worse, enter a whole new wave of growth. With it comes both prosperity and jobs as well as traffic and sprawl. As I write this blog, it is 80 degrees and sunny while NY, Chicago, and Minneapolis are all in the 20’s or below, thus the picture makes more sense.
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