'More of the Same'

Commercial real estate practitioners throughout the Gulf Coast and in various sectors expect the region's robust market to continue in the year ahead, the result of continued steady demand, a relative lack of overbuilding and a stream of new jobs and residents.

The Tampa area, in particular, is poised to gain new businesses and residents amid a wave of groundswell interest in the city. At the same time, new development has been lacking, pushing vacancy rates for office and retail spaces down to historic levels in both Tampa and St. Petersburg.

“Tampa's office market is the tightest it's been since the early 1980s, with a 7.5% vacancy,” says Brian Alford, market economist for CoStar Group.

“At the same time, rent growth there is phenomenal. It's a Top 15 city for all U.S. metro areas, which is why we're seeing high activity for investments, and there's been no new construction at all. It's why we think Tampa will be among the most attractive areas in the entire county for outside investment activity in 2018.”

Alford and others note the Sarasota/Manatee submarket and Southwest Florida's three counties — Charlotte, Lee and Collier — can boast similar prospects for 2018, albeit perhaps to a lesser degree.

Sarasota continues to ride a wave of new lodging and multifamily rental development, a push that is adding some 1,500 new apartments downtown and more than 1,000 new hotel rooms. Retail development, too, has kicked up, especially around the University Town Center mall. “Sarasota has added to its multifamily inventory downtown in the past year to a level that is one of the highest rates in the country,” Alford says.

And while Sarasota's office market hasn't fared as well as that of Tampa and St. Petersburg, the result of a lack of a white-collar business base, development has also been kept in check. That's meant that existing inventory has benefited from incremental rent gains.

Southwest Florida, too, has largely been constrained on new development of office space, although apartments and industrial product have been added throughout the area steadily over the past four years.

But significant job growth, especially in Fort Myers, could change that dynamic in the year ahead — even as the area braces for a population influx slated to be among the largest in the state over the next three decades.

“Construction has been steady across the board, and there have been a high volume of trades, especially in the Tampa area,” says Rick Brugge, executive director of commercial real estate brokerage firm Cushman & Wakefield's Tampa-based capital markets team.

“On the office side, there's been very little spec building and constant demand, and we've had growth in rents and population and jobs,” Brugge adds. “There's certainly no oversupply to speak of. The industrial market is fundamentally the same around Tampa and the Interstate 4 corridor.”

Brennan Investment Group is among a select group of industrial developers that have benefited from the shift.

In November, the Illinois-based firm signed a deal with a Pepsico subsidiary for the entire 605,000-square-foot building at its $100 million Centerstate Logistics Park, in Lakeland.

The lease is believed to be the largest industrial deal in the region in the past three years. Brennan is so bullish about the area that it has filed plans for a second building in the park, totaling 440,000 square feet. It hopes to complete that project in late 2018.

“Vacancy rates have remained low, rents are edging up and everything appears to be in balance,” says Brennan co-founder and managing principal Robert Krueger, who is based in Tampa. “Things look good for 2018.”

That sentiment also holds for retail space, hotels and apartment communities throughout the Gulf Coast.

Dan Peek, a senior managing director at commercial real estate brokerage Holliday Fenoglio Fowler (HFF), in Tampa, and the head of the firm's hospitality practice, expects investment activity in Gulf Coast hotels to rebound.

“In 2017, there was a bit of a lull in terms of sales, but I think in 2018 you'll see an uptick in transactions,” he says.

The area's retail market — at least in some pockets — should also enjoy a healthy year ahead.

“In the near term, during the first and second quarters of 2018, we see a continuation of the momentum we've had, with high occupancy,” says Mark Chait, director of Florida leasing for Manatee County-based Benderson Development Co., the largest retail landlord along the Gulf Coast.

“Obviously, 2017 for commercial real estate in Florida was a very strong year. But what we're finding is, we're talking now with a number of exciting potential tenants who are not yet represented in this market and who want to be here. I think it'll be our focus as a company in 2018 to bring new offerings to the market.”

And while the performance of the multifamily rental market, as measured by sales and rental rate growth, has been extraordinary since 2013, many analysts contend apartments will remain white hot in 2018.

“I really do believe we'll see more of the same in the year ahead,” says Matt Mitchell, an HFF managing director based in Tampa who specializes in multifamily transactions.

“The fundamentals — job and population growth — are holding up well,” he adds. “Supply is elevated but it's keeping up with demand. And while I think it's unlikely we'll see the kind of rental rate growth in 2018 we had in recent years, it should continue somewhat, in part because the supply pipeline is beginning to moderate. And that's good for the market because that will get us to equilibrium.”

CoStar's Alford notes that the Tampa area's job growth has been 2.5 times greater than the rest of the U.S., and apartment rents have risen faster than nearly every other U.S. city since 2014.

“My biggest concern for the Tampa region in 2018, and this applies to both urban office and apartment rentals, is that there's only so far vacancies can still fall. We're about at as full an occupancy as we can get.”