Economic question of the week

The U.S. economy is growing, albeit slowly. Florida is outperforming the average, particularly in the areas of net immigration and job growth. Slowing growth, the perceived threat of looming interest rate increases, global geopolitics risks and weak real wage growth are all headwinds that could impact Florida's commercial real estate industry. Even the strengthening U.S. dollar is a challenge, because of its impact on the historically active foreign buyer market in Florida. In spite of these potential headwinds, though, real estate as an asset class remains attractive to investors. The region's property markets, too, do not appear to be grossly overvalued nor overbuilt, so I expect commercial real estate investments to be largely stable statewide throughout 2016.

RYAN KRATZ
President | Colliers International | Tampa Bay, Central and Southwest Florida

Despite stock and oil market stumbles coming out of the blocks in 2016, I don't see any material economic headwinds for commercial real estate along Florida's Gulf Coast this year. That's because 2015 finished very strong in Tampa for office leasing and investments, and office fundamentals remain strong with limited new supply and sustained demand. At the same time, Florida continues to excel in job creation and population growth, leading U.S. and even many global markets. Strong job growth throughout Florida — and in the Tampa area, in particular — is providing the office markets in the region with some headroom, I believe, for continued growth. Virtually all of the area's commercial real estate firms are projecting continued steady office demand and positive rental rate growth along the Gulf Coast in 2016, the result of the job and population growth I mentioned before, an improving housing market and a limited supply of new product. In the Tampa Bay area, more specifically, commercial real estate fundamentals are positive and I think will continue to be positive for 2016, despite national economic and political uncertainty. If anything, the biggest challenge for new development is rising construction costs, though even there, that works to limit new supply from being overbuilt.

DAN WOODWARD
Vice President | Tampa
Highwoods Properties

I believe the Florida Gulf Coast's commercial real estate market is currently in a favorable state of balance. Our economy is driven, in large part, by population that is growing organically and from in-migration. That alone serves to create demand in every sector of our commercial markets. On the supply side, we see vacancies trending down, rental rates moving upward and values increasing. New construction has been in check, so delivery of new product has been in response to real demand — which is very different from some periods in the past where development was driven by flawed expectations. Challenges facing commercial markets along the Gulf Coast aren't limited to this region. Turbulence in equity markets can create an unsettling sense of prosperity — or loss. The forecast for rising interest rates moving forward, for instance, calls into question current valuation metrics, and scarcity of new product, be it residential or commercial, may force some to consider other markets. But the Gulf Coast remains a place overall where quality of life and the economic climate attracts an increasingly diverse workforce and industry. As such, we're a safe harbor by any measure in these times.

RAYMOND SANDELLI
Managing Partner |
CRE Consultants | Fort Myers and Naples

Considering the impact of all the ongoing and planned residential construction, 2016 should be a banner year for Gulf Coast commercial real estate markets. Financing is abundant. Historically low interest rates and ample capital for qualified projects have helped the region flourish. Baby boomers, millennials and those in Generation X are flocking to the area, powering the residential and, ultimately, commercial demand. But the region's office and industrial markets, while relatively strong in densely populated areas, have struggled in places like Sarasota and Manatee counties. Weakness in these sectors points to weakness in the overall job markets in those areas. And while the predominance of construction cranes regionwide suggests demand, no one truly knows the depth of that demand. Developers are infamous for flocking to a product type considered hot and over-building in the process. The market also will most certainly be impacted by ridiculously low oil prices and the 2016 presidential election. While low gas prices are great for consumers, petroleum-related industries suffer and that permeates the economy. The election could have a stagnating effect, causing some businesses to wait until the election before moving ahead with real estate plans. Even so, barring a major catastrophe, 2016 should be a positive year for commercial real estate.

JOHN HARSHMAN
Broker and President |
Harshman & Co. Inc. | Sarasota

The Tampa area has seen a tremendous amount of investment sales and recapitalizations fueled by an abundance of capital in the market and investor confidence. While some question whether the availability of capital is sustainable, I think most people already anticipate some upward pressure on cap rates as a result of future interest rate increases. Together, that could become a headwind against future sales. Another challenge will be the impact of technological change, which is revolutionizing the commercial real estate business. Already, mobile technology has changed the way office occupiers use space, and online shopping has changed where businesses put warehouses.

CHASE PATILLO
Managing Director |
CBRE Inc. | Tampa