Current State of the Commercial Real Estate Market in Florida
The housing market in Florida is booming. Homes are selling as soon as owners list them for sale, and they go for impressive prices. What about the state of commercial real estate in Florida?
Historically, commercial real estate trends lag behind housing trends by about 12 to 18 months. But the COVID-19 pandemic affects everything — including commercial real estate. Here’s a look at what you can expect from commercial real estate in Florida, as well as tips for buying or renting in the current market.
An Improving Market
Major Florida cities like Miami are already showing signs of market improvement. Colliers, a worldwide commercial investment management company, recently released a report that indicates vacancy rates in Miami didn’t change noticeably during the first quarter of 2021, although instances of commercial real estate rentals went up.
Retail space vacancies remained steady at around 4.6% at the end of 2021’s first quarter, while rental rates increased 1.9% over the previous quarter to 36.99%. For comparison, pre-pandemic retail space rentals averaged less than 2% higher at 38.35%.
Population Boom
People are returning to Florida for vacations and even moving to the Sunshine State to establish residence. Florida’s Office of Economic and Demographic Research estimates that five million people will move to Florida by 2030. Each year from 2015 to 2020, more than 300,000 people become new Florida residents. The number of new residents increased year over year, finally reaching 387,479 in 2020.
The pandemic slowed this growth, but not by much. Another 300,000 new residents are expected each year through 2024, when Florida may finally see a slowdown to around 297,000 in 2025. Even then, experts expect numbers to stay above 200,000 through 2030.
With more people in Florida communities, there is a higher demand for restaurants and retailers to fill commercial spaces and serve the growing population.
The Job Market
Company executives and aspiring entrepreneurs want to fill retail spaces in Florida, but the job market is just as much a factor as anything else. Before the COVID-19 pandemic, Florida boasted one of the nation’s lowest unemployment rates of 3.3%.
The unemployment rate went up in 2020 at the height of the pandemic and came back down in the first quarter of 2021, remaining below the national average. As unemployment requirements tighten midyear, more people will rejoin the workforce. This is good news for business owners.
Following Business Trends
Financial institutions and tech companies are among the top business industries moving their operations to Florida. Companies are rethinking how they allow their employees to work. They are ultimately downsizing space to accommodate hybrid work roles where employees split their time between working from the office and working remotely.
Business owners in these sectors and others should take a serious look at Florida’s commercial real estate options during this ideal time. It’s obvious that Florida is trending upward, and business owners who invest now have many more options and opportunities.
Accessibility
If Florida were an independent country, it would rank as the 17th largest gross domestic product (GDP) in the entire world. This is mostly because of the large variety of transportation services the state offers.
Florida offers efficient transport across the state, the nation, and around the world. Highways, airports, railroads, and seaports all make it easier to travel and move products quickly.
Tips for Investing in Florida Commercial Real Estate
Renting or buying commercial real estate in Florida is only smart if done correctly. What is right for one business owner isn’t right for everyone because commercial real estate isn’t one size fits all.
Having a Cash Flow Strategy
If the goal of a commercial property is to produce cash flow for your business, consider your entire commercial real estate portfolio. Assess your tolerance to determine the type of property you’re looking for.
Some properties offer fewer risks with a lower monthly cash flow. Other properties offer a higher monthly cash flow but come with greater risk. Cash flow properties should earn income as passively as possible.
Value-Add Property Considerations
You may find a property that has potential but isn’t where it needs to be. Examples of value-add properties include those that:
● Need to be renovated
● Have deferred maintenance
● Need landscape improvements
When you calculate the cost of the property, take into accountthe expenses needed to get the property up to par. Keep in mind that there may be more expenses than you anticipate, so round up to be safe. Your cash flow on a value-add property is likely to be lower at first, but you can expect to see a cash flow increase once work is complete.
Holding Time
How long will it take for commercial real estate property to begin turning a profit? Cash flow properties can usually be leased on a fast turnaround. Use these properties to generate income for additional commercial real estate investments.
Value-add properties have an extended timeline based on the amount of time it takes to complete projects to improve the property. The holding time for a value-add property is one to three years. If you’re flipping the property, you can usually do so within a year.
Appreciation
This point is particularly important in Florida. Because of Florida’s much-anticipated growth, commercial property values may increase in the years ahead. Many experts predict that Florida will lead the way for economic recovery.
Other tips for purchasing commercial real estate in Florida:
● Establish a relationship. If you’re not local to Florida, partner with a local agent for timely opportunities.
● Move quickly. Have your plan and strategy in place in advance. Know how much you have to spend and what your expectations are. As the market recovers, commercial real estate properties may sell and lease quicker.
● Research local construction partners. Business owners who anticipate purchasing a value-add property need to talk with construction leaders. That way, once they purchase a property, they can begin work on improvements quickly.