Experts feeling cautious, but good, about commercial real estate outlook for 2019

Gulf Coast commercial real estate markets are poised to continue to generate high growth again in 2019, mirroring — or even eclipsing — the region’s robust stalwart performance of the past year, experts predict.

Much of that belief is tied to future growth in the national economy, despite potential hurdles from interest rate hikes, international trade wars, a prolonged federal government shutdown, excessive corporate debt and fears about waning consumer confidence.

“I feel pretty good about things moving forward,” says Blake Gable, CEO of Barron Collier Cos., a Naples-based residential and commercial real estate developer and one of Collier County’s largest landowners.

“Obviously, interest rates are up from where they were 12 months ago, so the economy overall deals differently under that scenario, but fundamentally, we’re very fortunate to still be in a great part of the world. I’m still very bullish about the long-term prospects for Florida and the West Coast of Florida.”

"I’m still very bullish about the long-term prospects for Florida and the West Coast of Florida.” — Blake Gable, CEO, Barron Collier Cos.

That sentiment was echoed by a number of commercial real estate experts from Tampa to Naples, who contend that 2019 should be as banner a year for the industry as the prior 12 months, a year in which billions of dollars were invested in properties and leasing activity across all sectors was among the most significant since 2005.

“The two biggest factors that impact commercial real estate are job growth and population influx, and Florida has been the beneficiary of both in recent years,” says Larry Richey, managing principal and Florida market leader for commercial real estate brokerage firm Cushman & Wakefield.

“If you look at the metrics, employment in the Tampa Bay area added 22,000 new jobs year-over-year — that’s one of the best performances in the entire county,” Richey adds. “And that, in turn, has generated strong demand for seven consecutive years now. That demand, coupled with limited supply, has led to that sustained growth and I expect that to continue.”

Dale Peterson, a senior vice president with commercial real estate brokerage CBRE who focuses on capital markets and investment sales, says he, too, expects growth in the Tampa Bay area to continue throughout 2019 as a result of demographic shifts and corporate expansion.

“I’m very optimistic that we’ll continue the growth we’ve experienced in the area in the new year,” Peterson says. “Tampa Bay has a strong story to tell from a macro-economic and labor dynamics perspective.

“Tampa has been the beneficiary of being the No. 1 market in the country in terms of office absorption because there’s been no new construction to speak of for the past several years,” he adds. “And that’s led to some significant rental rates increases — 22% over the past five years — that have, in turn, led to greater demand from investors.”

Moreover, Peterson says the Tampa area’s growth could continue well beyond the new year.

CBRE is forecasting that Tampa Bay will experience positive office space absorption through 2023, and that office rental rates will increase another 17% between 2019 and 2022.

“This bodes well for market performance into the future,” Peterson says. “It’s reflected in strong investor and institutional buyer interest. Tampa is showing up on a lot of people’s radar screens now.”

The Sarasota-Bradenton market also is drawing continued interest from developers and investors alike, who cite population and economic growth as key drivers moving forward.

Over the past five years, in particular, the lodging and multifamily rental sectors have grown considerably in Sarasota.

“One of the threads I keep hearing is how Sarasota, in particular, never really caught up in terms of new supply from the stagnant years brought about by the last economic recession,” says John Harshman, president of Harshman & Co. Inc., a Sarasota-based commercial real estate brokerage firm.

“As such, there’s still pent-up demand in this market,” Harshman adds. “And macro-economic trends, together with local government ordinances, have played a role in growth — especially with the apartment sector. Home ownership is down, and that’s been a positive trend for the multifamily rental market.

“Hotel development has also helped the overall,” he notes. “As the Westin, Aloft, Embassy Suites, Art Ovation and Sarasota Modern reach fruition, they will in turn bring new people to the area to discover Sarasota.”

Development of new office space downtown for the first time in a quarter century also is expected to have a big impact on downtown Tampa in the coming years, beginning in 2019.

Three new downtown office projects are poised to go vertical in the coming year, within the mixed-use Water Street Tampa, Heights and Midtown Tampa projects.

Taken together, the three developments are expected to begin construction in earnest of more than one million square feet of new office space downtown. Several projects are also underway or in the planning stages in Tampa’s suburban Westshore district, where investment activity has been concentrated in recent years.

CBRE’s Peterson notes that of 21 office transactions in 2018 that generated sales volume of $643 million, only three were located in Tampa’s central business district. The others involved properties in Westshore.

“We’ve been waiting for this literally for decades in Tampa,” Richey says. “And now we’re finally where we should be, and it’s because rental rates have risen to a point where they’re pushing new development forward.”

"We’ve been waiting for this literally for decades in Tampa.” — Larry Richey, Florida Market Leader, Cushman & Wakefield

Both Richey and Peterson says significant demand for new industrial space, coupled with building improvements, the success of online commerce and changes within the logistics industry, has also generated positive growth in that sector in Hillsborough, Pinellas and Polk counties, as well.

“There are now more industrial projects in terms of square footage being contemplated or constructed in the Tampa area now than at any point in the past 20 years,” Richey says.

“And that’s on top of the fact that five million square feet of industrial space was leased in those three counties in 2018,” he says. “That’s a huge number for one year.”

And despite all of the multifamily rental construction of the past few years, Richey believes the apartment sector will continue to do well throughout 2019.

“Rents are continuing to do well, and rising interest rates have a huge impact on the multifamily market because they impact people’s ability to buy homes,” Richey says. “Arguably, we’re in extra innings in the multifamily sector, to use the baseball analogy, and you could point to data that says there should be leveling off, but I think 2019 will be just fine for multifamily projects.”

That assessment extends to Naples, as well.

“There’s still a ton of apartments in the pipeline in Lee and Collier counties,” Gable says. “And that because for 10 years or more, there was nothing built, so the market here is woefully undersupplied. There may be a bit of a pause because there’s been a fairly dramatic increase in supply, and as a result it may be harder for developers to get financing, but there are some groups who look at the population growth in the two counties and the projections and plan to move ahead.”

Gable adds he, too, sees no reason why Florida — and particularly the Gulf Coast — can’t sustain at least some of the growth from the past few years.

“The state is a go-to place for business and the fundamentals are very strong,” he says. “So I feel good. Cautious, but good. There’s a great quality of life to be had here, and in that regard, Southwest Florida and the entire region are up there with anyplace in the country.”