Demand Outpaces Supply

Demand Outpaces Supply

With less high-producing commercial property available, Realtors must compete in a seller's market.

By Sean Roth

Real Estate Editor

Jim Walter, a broker with Richardson Kleiber Walter, has one word to describe this year's commercial sales listings - horrible. While Realtors debate which sector of the market is responding the worst, the general consensus is that high-producing properties are hard to find in Sarasota and Manatee counties. Walter and his fellow commercial brokers are being forced to adapt to a strong seller's market.

"There has certainly been an increase in the market absorption," Walter says. "It's getting particularly critical in south Sarasota County. This is the lowest level of inventory I have seen in the past 20 years. We are also beginning to run a short supply of vacant properly zoned properties that meet the concurrency. This is our major problem right now."

Roy Watters, manager of the commercial division for the largest real estate company in Manatee County, Wagner Realty, echoes Walter's supply concerns.

"Listings do seem to be harder to come by," Watters says. "Finding product is still very hard to do."

Of the three main commercial areas (industrial, office and retail), office properties are the hardest to find, Watters says, adding: "If there is anything that made sense last year it is already gone. We really can't find any strip centers or office centers. Industrial is the best market, right now."

In response to the tight market, Wagner encourages its agents to focus less on the Multiple Listing Service and instead search for more property.

"For instance, say we have a client who needs to buy an office building," Watters says. "You can't just pull up the listings for Manatee and Sarasota counties because you won't find anything there that is available. You have to ask individual office owners. What's getting worse is now people that have these properties are saying, 'What can you put me in?' It has changed the way that we do business."

Low inventory and the tax system have combined to keep willing sellers from selling. The 1031 exchange program allows a property seller to take the profit from a real estate venture and reinvest it tax free in another piece of real estate. The catch: there's a requisite time limit for purchasing the second property. With little other high-producing property available, a seller has to weigh the potential profit against a significant tax hit.

"This is holding people back," says Barry Seidel, president of American Property Group of Sarasota Inc. "I am certainly not the only broker in the county that is feeling this. I have lists and lists of people that want to buy. There is just the question of what a seller can do with his money."

Seidel's answer to the 1031 conundrum: steer buyers to under-performing properties. "I will sometimes encourage clients to buy property that is not fully leased, something we can improve" Seidel says. "We can turn that 7% and 8% return into a 10%. These may not be great properties to start but they can by worked."

Joe Hembree, president of Hembree & Associates, has taken the tight property as an opportunity to expand his business. "In recent years, I have started developing more myself," Hembree says. "That way I can control the sale, the management and the leasing. The nice thing about developing is that if you pick the right piece of property you are creating value."

Dan Devito, commercial manager for Sarasota's Michael Saunders & Co., says the company experienced most of the supply crunch last year, with a drop in the availability of facilities for smaller users and retail centers. "This year is actually starting to better than last year for us," Devito says. "Our listings are back up were they used to be."

Even so, he has seen significant growth in the sale of vacant commercial land. "We have gotten more active in the area of Lakewood Ranch, where land costs are still more affordable," Devito says. "We have also sold lots of vacant land on Clark Road. You put the buyer and contractor together. Then if you are lucky you get to do the leasing and the management of the property."

In the south Sarasota County region, Walter says the tightest market is industrial and retail. "If you look at the shopping centers," Walter says, "you see almost no vacancies. And even if there are vacancies it is such a finite amount. It is all very tight."

What is making the south area even more of a concern is that so far Walter has not seen a significant jump in prices as expected, given the property shortage.

These shortages have meant Richardson Kleiber Walter's advertising costs have gone up. "We have increased our marketing," Walter says. "We are doing a greater amount of direct mail. And more door-to-door contacting people."

Even the smaller more specialized real estate companies, like Layton & Co. Inc. in Sarasota, are feeling the pinch.