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The Rise of Florida Commercial Real Estate Market Trends

Florida's commercial real estate markets poised for continued growth - South Florida Business Journal

 

The Rise of Florida Commercial Real Estate Market Trends

The Commercial Real Estate market in Florida has experienced significant growth and change over the past few years. Due to the state’s favorable business climate, growing population, and low taxes have made it an attractive destination for companies looking to expand or relocate. We will discuss five of the current trends in Florida’s Commercial Real Estate market.

Growth of the Industrial Warehouse Sector

With The rise of e-commerce and online shopping and specifically service-based industries in Florida,  the demand for warehouse and distribution facilities has increased significantly. As a result, developers are building larger and more sophisticated industrial buildings to meet this demand. According to CBRE Florida ranks third in the nation for the total square footage of new industrial construction.

Flight To Quality and Flexible Office Arrangements 

The growth of remote work and the gig economy, many companies are seeking flexible workspace solutions that can accommodate their changing needs. Co-working spaces, which offer shared office space and amenities, have become increasingly popular in Florida’s urban areas. We are calling a “flight to quality” for companies who are choosing to lease office space in locations with buildings that provide amenities for Tenants and located where their ideal employers live, work and play. In Tampa, we are seeing this example in Westshore and Downtown Tampa. 

The Hospitality Sector Has Bounced Back and There Is No Looking Back

Florida’s tourism industry continues to thrive, with record numbers of visitors each year. According to Visit Florida, the state’s official tourism marketing corporation, Florida welcomed a record-breaking 135.5 million visitors in 2022. As a result, developers are building new hotels and resorts to meet the demand. Additionally, there is a growing trend of mixed-use developments that combine hotel, residential, and retail space. In Tampa Bay we have experienced an influx of new restaurants in Downtown Tampa’s Water Street community and Midtown, both mixed use developments which opened their doors to Tenants and patrons in the past two years. 

Retail Isn’t Dead, It Might Look a Little Different Though

Florida’s retail sector has been impacted by the growth of e-commerce, with many brick-and-mortar retailers struggling to compete. Fair to say we will be seeing changes in malls and the reuse of some of the big box Tenants being reimagined to smaller footprints and more experienced focused purposes. 

Florida’s favorable business climate and growing population have created opportunities for retail developers who can provide unique shopping experiences. According to Macro Trends Tampa Bays Population was 2,945,000 in 2022 and currently 2,977,000 in 2023. For example, outdoor shopping centers that offer dining, entertainment, and community events have become popular in Florida’s urban areas. Midtown which is centrally located between Westshore, South Tampa and Downtown Tampa is a prime example of new national retailers and restaurants who have expanded into Tampa Bay. 

Race for Multifamily Developers

Florida’s population is projected to continue to grow, with many young professionals and retirees moving to Florida. As a result, developers are building new apartment buildings and condominiums to meet the demand. Tenant’s are demanding convenience and desiring more than an apartment but built in a community with a small grocery and other day to day needs. No longer are the days where developers are delivering apartment complexes without a retail component for their Tenants.

Florida’s commercial real estate market is evolving to meet the increased demand by population growth plus the lack of existing housing. Florida’s  favorable business climate and low taxes are playing a key role in driving the economy forward. Developers are building larger and more sophisticated industrial buildings, co-working spaces and flexible office arrangements are becoming increasingly popular, and the hospitality, retail, and multifamily sectors are all experiencing growth. As the state’s economy continues to thrive, it is likely that these trends will continue, creating opportunities for real estate investors and developers in Florida.



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Florida Top Population Growth

 

Census: Florida defies decline in population growth; nation becomes more diverse

The Sunshine State took the top place for the first time since 1957 in terms of the nation’s highest population growth, according to estimates issued last week by the U.S. Census Bureau Florida saw the country’s most substantial growth. Its expansion revitalizes the economy and makes Florida more appealing and competitive worldwide. The third-largest state in the US had a population growth of 1.9% between July 2021 and July 2022, adding more than 400,000 people to the state’s 22.2 million total, according to Ian Hodgson of the Tampa Bay Times. According to these experts, most people moving last year were older U.S. residents nearing retirement age. 

Remote working increased during the Pandemic in 2020, creating an influx of individuals relocating to Florida to take advantage of the flexibility. We have seen the younger generation moving to Florida in recent years selling their homes in more expensive areas like New York and California. This younger generation is purchasing cheaper properties in Florida. “Cheaper” is no longer what it once was due to the competition for scarce homes brought on by out-of-state money. Comparing prices in the states where transplants are leaving (California and New York), Florida’s record-high numbers are appealing unless you are an existing Florida resident. 

Throughout 2022, South Florida had a decrease in the number of vacant commercial properties, while vacancy rates rose in cities like New York, there were 57,488 New Yorkers who relocated to Florida. It is nothing new, as New Yorkers have been moving to Florida forever. In fact, New Yorkers want to take advantage of cheap taxes, pleasant weather, and a supportive business climate. 

There are two top factors luring people in higher income brackets to Florida. The absence of personal income tax, one of the few states in the US that exempts its citizens from paying state income tax. The overall state tax burden in Florida will be far lower than the majority of states, even with paying sales and property taxes. Secondly,  lifestyle reasons with weather, sandy beaches, amusement parks and outdoor activities. Income for remote workers in these higher income brackets, can go a longer way in the State and enhance their lifestyle as a whole.

Despite the many reasons people are moving to Florida, there are also challenges associated with population growth. As more people move to the state, there is increased demand for housing, transportation, and public services. This can lead to issues such as overcrowding, traffic congestion, and strains on infrastructure.

Overall, Florida’s population growth is a complex issue with both positive and negative impacts. While it has brought new economic opportunities and lifestyle benefits, it has also created challenges related to infrastructure, the environment, and the quality of life for residents. As the state continues to grow, it will be important to carefully manage these issues to ensure that Florida remains a desirable and sustainable place to live for generations to come.



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4th Quarter 2022 Tampa Bay Office Market Report and Q1 Forecast

Important Highlights:

Tampa Bay:

  • Hillsborough and Pinellas Counties’ unemployment rate of 2.6% is drastically lower than the nation’s rate of 3.7%. 
  • Year over year, average asking rates remained the same, falling by little than 1 cent per square foot. 
  • The Tampa Bay area continued to win awards for its workforce, with Lightcast ranking Florida as the top state and Hillsborough as the eighth-best county for talent attraction in 2022. 

Office Market:

  • Vacancy increased to just over 20% primarily due to the increase in large sublease space that came back to the market totaling Approx. 900,000 SF
  • Leasing activity was robust, over 3 million SF leased but did not hit record-breaking numbers in 2021. Over 80% of the activity was accounted for in Hillsborough County and a substantial decrease in Pinellas County. Westshore experienced the most leasing activity.
  • Direct Face Rents were up over 1% compared to Q4 2021. 
  • Direct absorption trended favorably, finishing the year with more than 105,000 square feet. In addition, the main submarkets’ combined direct absorption of 535,000 square feet per year, comprising Westshore and CBD markets, highlights those submarkets’ demand under the current economic uncertainty.

                                                   

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $34.01 Sq. Ft.  $38.81 Sq. Ft.
Downtown Tampa $29.19 Sq. Ft. $31.95 Sq. Ft.
Northwest Tampa $26.17 Sq. Ft. $28.19 Sq. Ft.
South Tampa $23.82 Sq. Ft. N/A
I-75 Corridor $26.08 Sq. Ft. $27.22 Sq. Ft.
Downtown St. Petersburg $28.29 Sq. Ft. $34.61 Sq. Ft.

 

Building Highlights: 

  • Despite the current economic instability, such submarkets continue to be in great demand. As they search for space in mixed-use buildings, Tenants like Aviation Authority, White & Case, and Primo Water moved into 174,000 s.f. of new construction in Westshore and Tampa CBD this year. Companies believe these mixed-use developments may entice workers back to the workplace.
  • A focus on a flight to quality buildings providing Tenant focused amenities and strategically located where employees currently live, near their grocery store, gym, and where they spend free time.

2023 1st Quarter Forecast:

  • The regularity for businesses to invite workers back into the office will continue to rise. In order to sustain teamwork, camaraderie, and creative collisions, those that have flexible schedules may find it advantageous to base their scheduling on personnel who operate in the same teams or departments. 
  • If a business delays office space matters [renewing a lease vs. relocating] until the last minute, Tenants will find themselves at a disadvantage, with few alternatives, and minimal, if any leverage with negotiating based on the construction timelines and competing for availability in popular submarkets such as Westshore and Downtown Tampa. 
  • Tampa Bay will continue to see out-of-state businesses migrate and expand to Tampa Bay. 
  • Demand for under 5,000 SF office space could continue to remain high

What does this mean for Tenants?

  • Evaluate what is the best long solution for your company. What is best for the long-term well-being of the company. In a world where some work is moving more remote, how could mentoring, professional growth, and possibilities for younger employees look? Is it a hybrid, remote, or in-office job? 
  • Vacancy rates continue to be lower in comparison to those in other major US cities and are not feeling the same “pain” despite the fact that Landlords are more prepared to offer rent abatement and increased Tenant Improvement allowance due to high construction costs.

What does this mean for Landlords?

  • In order to provide at least basic building standards and Tenant specific finishing, Landlord’s must consider increasing Tenant Improvements allowances for construction expenses to compete for the right Tenants.

  • Profit margins will be impacted by inflation, but increased rents and 3-4% annual increases can aid in the impact of inflation.

  • Capturing Tenants will be easier when Landlord’s provide turn-key spec office spaces that are move-in ready for companies with pressing deadlines.

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Why Your Neighbors In Your Office Building are Important

What are the different types of office spaces? - Avanta Business Centre

 

The reality is your office neighbors have almost the same impact as the next-store neighbors of your house or apartment. If you are miserable in your office because your office neighbors are too loud, it’s going to be much harder to want to be in your office and get work done. If you are looking for a quiet, peaceful, and professional setting with neighbors who are the same, vice versa. You have to find office neighbors that share the same values as you.

 

Here Are Two Recommendations to Consider When Evaluating an Office Building:

1.Evaluate the Existing Tenants

Take a look at the directory to evaluate what kind of industries of the neighboring Tenants. Are any of the Tenants in the building competing in your industry? Would any of the Tenants be good neighbors to have to refer business back and forth? Check out the parking lot to determine based on the building occupancy, if there is plenty of parking available for the available office space. Some could be over-parking and negatively impact your companies’ experience.

 

2. Are Tenants Considerate in Common Areas

Cleaning after yourself when using the Tenant’s common areas including lounge, conference room and bathroom is a common courtesy and is important to consider when you share common spaces with others. Although majority of office buildings have janitorial services 3-5 times a week, janitorial services typically come in the evening. 

 

A few others include: 

  • Utilizing the smoking areas.
  • Proper hygiene.
  • Having professional behavior is a key component in Tenant common areas. Improper discussions, practical jokes and so on will soon make the workplace unpleasant. 

 

Both of these impact the type of experience your team has in the office building and thus playing a role in their experience at the workplace while your company calls that building home for the next 5+ years.





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Why the Hybrid Work Model is Important 

When the whole globe went into lockdown in 2020, many of us were forced to test out alternative employment arrangements. The majority of businesses took advantage of this as a chance to review their workplace cultures. The traditional full-time office model may soon be replaced by the hybrid model, which will fundamentally alter how businesses operate and interact with their clients, workers, and suppliers. This being said there are many benefits of the hybrid work model. According to Forbes, 83% of 9,326 workers surveyed say they prefer a hybrid model, in which they can work remotely at least 25% of the time.

 

  • A Rise in Productivity 

With more freedom to play to their strengths, people can work more productively under a hybrid approach. Teams may achieve a solid mix of creativity and cooperation by promoting a culture that sees remote work as a beneficial option for finishing deep-focus projects in the office. Giving employees the option to work where and when they are most productive might benefit those who require quiet, alone environments to concentrate. According to PWC, new Research shows that as many companies have boosted workforce productivity and performance during the pandemic

 

  • More Possibilities For Lifelong Learning 

The ability for employees to engage in continual learning outside of the busyness of their typical work environment is another significant and perhaps underappreciated feature of a mixed work arrangement. This implies that if they are working from their office for a portion of the workweek, they may work from home for the remaining time on personal development goals to improve their job performance and career prospects. Especially for those with long commutes, removing the community to and from the office can free up time for personal development and hobbies which would positively impact work performance. 

 

  • Improved Relationships & Collaboration 

Unlike remote work, hybrid work allows for face-to-face contact and cooperation, which promotes healthy team-building and, as a result, improves employee collaboration. Employees will be able to interact and build deeper working connections as a result of being given the opportunity to speak and socialize in person. This will also enhance departmental, team, and workgroup collaboration. This mainly can be true in our present environment, where many employees communicate and collaborate with their coworkers via screens rather than in person. Every face-to-face communication, which might only take place during scheduled meetings when working remotely, might create a chance for mentoring, knowledge sharing, or making crucial business connections.