Across Florida, as real estate professionals look into their crystal balls, the only thing certain is a storm of uncertainty.
Will sky-high insurance rates come back to earth?
Will prices for construction materials hold steady awhile longer with new residential construction slowing?
Will county governments find solutions for dwindling water and sewer capabilities at a time of higher demand?
And finally, will a hurricane come along this approaching season and render all the other issues moot?
In some ways, those operating in the traditional NAIOP markets – industrial, office, and commerce real estate – say conditions are more favorable now than they have been in the last two years.
“The total market has taken the top off all the price increases we received on construction materials,” says Bill Martin, director of business development for Hawkins Construction in Tarpon Springs. “And we didn’t get hammered by a hurricane in 2006. Fuel oil is stable; gas prices seem stable. That’s significant because fuel oil affects all the asphalt and roofing products, as well as all the equipment we need to build. All that has stabilized prices.
Stevens Tombrink, EVP/Managing Director Grubb & Ellis|Commercial Florida and this year’s president of the Tampa Bay chapter of NAIOP, agrees. “When you have a slowdown in residential, you have a slowdown in disposable income, and a slowdown in people moving to Florida. People have been affected by the increasing cost of living in Florida.”
In the 2005-06 run-up on new residential construction, Tampa Bay experienced a new phenomenon: land zoned for office being snatched up and rezoned at “ridiculous” prices by residential developers.
“Land prices are finally coming back to sanity,” says Dallas Whitaker, senior vice president of Colonial Properties Trust in Tampa. “In terms of office demand, ‘07 should be a good demand and absorption year, similar to ‘05 and ‘06. Even rental rates have risen to the point where new development is finally justifiable.”
Whitaker’s firm is one of those back in the game.
“With construction pricing easing and land prices letting up,” he says, “it’s narrowed to the point that the green light is on for certain development. We’ll see some cautious development and expansion over the next few years.”
Developers must be extremely confident of demand for expansion and relocation opportunities because prices for new class A space is anticipated to be record-setting for the Tampa Bay market. In Tampa’s Westshore office district, for example, construction costs for class A have reached $230 to $250 per square foot depending upon finish and height.
“What’s not making sense is what people are paying to buy existing product,” Tombrink says.
“He’s right,” Whitaker confirms. “They’re betting they’ll be able to increase rates over time.”
“We get calls from people asking what it would cost to build new vs. remodel,” Martin says. “They’re fishing for the back-end – can you spend $30 to $40 per square foot to bring an older building up to par? Because it’s still way below what it would cost to come out of the ground.”
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Copyright 2007 Will Eisner: A Spirited Life by Bob Andelman