Tight Market

Tight Market

Commercial real estate by Jean Gruss | Editor/Lee-Collier

Lee County's office-space market is marked by low vacancies and rising rents. But a closer look at the county's submarkets shows some pockets of empty space.

When executives with Songy Partners looked at Lee County's low vacancy rate for office space, they liked what they saw.

The Atlanta-based company is developing six office buildings totaling 360,000 square feet at the Forum, a vast residential and commercial development near the intersection of Interstate 75 and Colonial Boulevard in Fort Myers.

With Lee's overall office-vacancy rate a mere 4.5%, developers are confident they can fill buildings with new tenants who will pay rents of $20 or more per square foot.

Songy Marketing Director Mat Sulya says the first 60,000-square-foot building is already fully leased to an undisclosed software company and a business college. "It'll be ready by late 2007," he says.

Tenants also are looking for opportunities to buy office space. "My impression of the market is that there are a lot of people looking at buying rather than leasing," says Gregg Fous, president and CEO of Market America Development in Fort Myers. That's because long-term interest rates are still relatively low and rents have increased substantially.

For example, Fous says his sales of office condos in 19 buildings at Brantley Commons near Summerlin Road and U.S. 41 has been particularly strong. "We're finding the office-condo market is very strong right now," he says.

Local companies growing

So far, most prospective tenants are local companies that need more space for their growing businesses, Sulya says. In addition, developers and brokers report that companies are moving to Lee County from Collier County, where rents have spiked even higher.

That migration trend up the coast from Naples has been occurring for the last several years, brokers say.

"A lot of large corporations were coming down to Naples," says Nathan Sheppard, a broker with Gates D'Alessandro & Woodyard in Fort Myers. "Then it got too expensive and companies started moving north."

In response, developers several years ago started building offices in Bonita Springs, the town that separates Naples and Fort Myers in South Lee County. But many tenants hop scotched Bonita Springs in favor of Fort Myers because many of their employees live in the Fort Myers area.

The result is that Bonita Springs has double-digit percentage office-vacancy rates while neighboring Fort Myers has been in the single digits. According to market tracker CoStar Group, 13.2% of the office space in Bonita Springs is vacant, versus 4.7% in nearby South Fort Myers.

Meanwhile, Cape Coral's office vacancy rate is 2.4%, mostly because it's a residential community where land is difficult to assemble for commercial development. Some have been successful, however. Fort Myers-based McGarvey Development plans to build 176,500 square feet of office space at Pine Island Road and Santa Barbara Boulevard.

Bonita office space

Part of the reason Bonita Springs' vacancies are higher is because many new buildings were built in recent years. "A lot of the buildings built in 2005 are now coming on line," says Andrew DeSalvo, a land consultant with Premier Commercial Properties of Southwest Florida in Bonita Springs.

What's more, the office market in Bonita Springs is just one-eighth the size of Fort Myers', so any new buildings that come on line skew the vacancy rates substantially higher. According to CoStar, there's more space available in South Fort Myers than Bonita Springs despite the fact that vacancy rates are higher in Bonita Springs.

"Sometimes, in a rapidly growing market like Bonita Springs, you'll have projects built that throw the statistical numbers off even though the market is relatively healthy," says Dougall McCorkle, vice president of commercial development for Lutgert Cos.

Still, Bonita Springs' traffic woes in recent years have deterred some tenants who have a choice of where to locate their offices, brokers say. The widening of U.S. 41 through that area was just recently completed after lengthy delays and traffic congestion.

And higher vacancy rates appear to have kept a lid on rental rates. CoStar data shows rents are about $1-per-square-foot lower in Bonita Springs than in South Fort Myers.

But as the county builds out, it's likely that office users will converge in locations where there's available office space. "Eventually, in the near future, Naples, Fort Myers and Bonita will merge," says Sheppard.

CoStar Focus: Lee Office Market

Although Lee County's overall office-market vacancy rate is low, vacancies and rents vary by submarket. Average rents are quoted net of tenant expenses.

Avg. Rent/square YTD absorptions

Submarket % Vacant foot ($) (sq. ft.)

Bonita Springs 13.2% $17.54 ?14,494

Cape Coral 2.4% $16.42 ?18,038

City of Fort Myers 2.7% $13.72 ?65,065

Estero/San Carlos 4.3% $17.88 4,847

South Fort Myers 4.7% $18.43 ?62,452

Total Lee 4.5% $17.80 ?159,687

Source: CoStar Group