UF survey: Florida’s commercial market remains strong

GAINESVILLE, Fla. – Jan. 29, 2008 – The latest survey by the University of Florida’s Bergstrom Center for Real Estate Studies finds two real estate worlds in Florida. While the residential world continues to suffer and receive bad press, the commercial world thrives. Analysts say that commercial respondents continue to report stable, healthy conditions in the state.

The report finds the following:

Single family & condominium development

The outlook for absorption of new single-family homes, for the fourth quarter running, appears to have no change. While the balance of expectations has become slightly more pessimistic in the last quarter, its steady pattern over the last year suggests that absorption of new single-family homes is not expected to deteriorate further. The outlook for absorption of condominiums remains more pessimistic with the balance of opinion expecting a continued downward drift. Expected prices are a more clearly pessimistic story. Both for new single family and for condominiums, expectations have moved toward flat or falling prices. Despite this pessimism, the outlook for investment in single family and condo development turned upward slightly, suggesting that some respondents are seeing relief for residential development in the months ahead. While single-family development is perceived as a mixed opportunity with slight improvement, condo development remains viewed as more negative, though also slightly improved.

Apartments

The occupancy outlook for market rent apartments has become less optimistic, declining over the last four quarters from strong expectations of increases to expectations of no change. Expected occupancy of apartments targeted for condo conversion is slightly negative, with a minority of respondents expecting declines. Expectations for market apartment rental rates have declined over the last year, but remain unchanged from last quarter, expecting increases slightly below the rate of inflation. Expectations for rental rates in apartments targeted for conversion have been more volatile, but this quarter are virtually the same as for market rent apartments, at slightly below the rate of inflation. The outlook for apartment investment remains, on balance, positive. While it has been declining over the last year, it held steady from last quarter at slightly better than neutral. The investment outlook for apartments targeted for condo conversion is more pessimistic, and drifted downward notably from last quarter.

Industrial

The outlook for occupancy in industrial property has declined over the last year from strong expectations of increases to expectation of no change. Similarly, the outlook for industrial rental rates has drifted downward to expectations of rental rate increases trailing the rate of inflation. Despite these weakening expectations, the outlook for investment in industrial property remains mixed to positive, as it has been for the last year.

Office

The outlook for office occupancy has steadily declined for the last six quarters from strong expectations of occupancy increases to mixed or neutral expectations. Expectations for Class A occupancy are slightly more positive than for Class B space. Similarly, the outlook for rental rates has drifted steadily downward, though expectations still are for rental rate increases very close to the rate of inflation for Class A, and only slightly weaker for Class B. The outlook for office investment has been volatile, improving noticeably from last quarter, but still hovering around neutral or mixed.

Retail

The outlook for retail occupancy has uniformly drifted downward over the last three quarters. Expectations have gone from a tendency to expect increases in occupancy to expectations of no change for all but large centers. Expectations slightly favor declines in large center occupancy. The outlook for rental rates in retail properties has drifted downward over the last three quarters, but by and large is still for rental rate increases at the rate of inflation. The outlook for investment in retail has been volatile, but rebounded slightly from last quarter to mixed or neutral.

Land investment

The outlook for investment in land has continued a slight downward drift for all categories, but at different levels. While the outlook is mixed or neutral for land with entitlements for hospitality, warehouse and R and D, and for office, the outlook tends negative for land with entitlements for residential, for urban renewal or with no entitlements.

Capital availability

In possible contrast to capital for single-family mortgages, our respondents see no decline in availability of capital for acquisition of investment property. With capital for development there is more pessimism, and respondents continue for the third quarter running to believe the availability of capital for development has declined.

Cap rates & yields

After remaining virtually unchanged for almost two years, cap rates for some properties (apartments and industrial) show an increase from last quarter. Cap rates for office and retail remain unchanged. The steadiness of cap rates has been in sharp contrast to the expectations of respondents, who have uniformly expected all cap rates to increase. Required yields remain unchanged for all property types.

The quarterly survey, conducted by the Bergstrom Center for Real Estate Studies at the University of Florida is in its ninth fielding. The total number of participants, at 339, is the most extensive survey of Florida professional real estate analysts and investors conducted on an ongoing basis. It includes respondents representing 13 urban regions of Florida and up to 15 property types.

© 2008 FLORIDA ASSOCIATION OF REALTORS®

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