Commercial Real Estate Profile: Carlton Lloyd

Carlton Lloyd
Senior Managing Director, Integra Realty Resources-Southwest Florida
Naples

Carlton Lloyd has been the managing director of Integra Realty Resources' Naples office since 2009, but he keeps tabs on Florida's commercial real estate market beyond Collier and Lee counties as a partner in the firm's Orlando and Miami offices, as well. Lloyd, who has been with Integra and its predecessor, Appraisal Research Corp., for two decades, oversees 45 employees. In addition to appraisal work, Integra offers consulting services, market studies, real estate research and valuations.

With all the growth in the retail and restaurant sectors, why hasn't more traditional strip center development occurred this cycle in and around Naples?
In Collier County in particular, there are a few reasons why there's been a dearth of development of traditional retail. There is some of that going on, I should point out. Publix is working to build a new store on Randall Boulevard here and Kite Development is putting a project together they're calling Tamiami Crossing, a power center. So there is some more traditional retail development ongoing.

But the common thread among the new projects is they are all outlying additions, on the fringe of existing developments. They're not near the beaches or in existing towns, and I think that speaks to a lack of quality sites in established areas for larger centers. So instead, you're seeing what retail is coming on line occur in the form of mostly build-to-suit projects.

The discount grocer Aldi and Bed, Bath & Beyond are both doing projects like this, standalone projects on Naples Boulevard. I think some developers see these types of projects as more attractive because they don't have to worry about leasing an entire center and vacancies. And ultimately those projects have a better ability to be traded as a net-lease asset, which typically trade at lower cap rates than a typical strip center.

Compared with other sectors, why have office investment and development lagged in Naples?
The office segment in Naples was probably the hardest hit segment of all of the four major commercial real estate asset classes during the recession, and I think to a degree we're still absorbing that excess inventory. Vacancy rates have come down, but they're still in the 9% range, and that figure doesn't reflect what shadow inventory may be out there.

A lot of office users in the Lee and Collier area prior to the recession might have occupied say 5,000 square feet with between 20 and 30 workers in that space. Now, that same business might occupy the same gross amount of space but it has only 15 to 20 workers. Businesses are hiring more workers and eventually that will drive new development, but we're still a long way from there, I'm afraid. And the national trend, which we're seeing play out here in Naples as well, is that workers are generally occupying fewer square feet than ever before. A lot of that is the result of technology, so it's taking markets longer to absorb office space as a result.

Naples' industrial market has recovered with rising rental rates, decreased vacancies and heightened demand. And yet, to date, very little new inventory has been added to the market. Why?
The industrial market here, interestingly, is the one sector that is truly hot. Smaller condo spaces are just killing it, even while there's not been a lot of construction occurring. The Runway Business Park, near the Naples Airport, has been built, but it's flex space that's mainly being marketed to, and used by, car owners looking for storage. The reason the industrial market in Naples crashed so hard the last decade is because it's mainly utilized by construction-oriented service workers. That's largely why the sector is back in vogue now. I think we will see some product before long go in for planning and permitting, and if so, I think they'll just make it in time for this cycle, cause there's a feeling that we're nearing, or close to, the top of the cycle now.

Is there concern in that some renters will be unable to afford the new multifamily developments?
Multifamily remains a big question. I see why it's such an attractive asset class right now for developers: The vacancy rate is almost zero, and that's prompted a lot of new product to come online. But yeah, at some point we'll hit a breaking point where rates become unaffordable to many...

...Lee and Collier counties have about 5% to 10% worth of inventory coming online, which should push the vacancy rate to a more normalized figure. As a result, some owners may have to lower prices somewhat.