Market Opportunity

All Real Estate is Not the Same — Commercial Property’s Continuing Growth Prospects

With the residential housing bubble’s burst at the forefront of news these days, you may not know that current supply and demand conditions for commercial office space are favorable in many areas across the United States. Conditions are particularly lucrative in the Sunbelt states, where continuing economic, population and job growth are driving steady demand and ensuring office rents continue to climb on limited vacancies.

According to a recent Bloomberg article, office rents were up an average of 13% nationwide to a record high in the third quarter of 2007, while vacancies remained close to their lowest levels in six years. Not since the Sept. 11th terrorist attacks have commercial occupancy rates and business property demands been so high.

In fact, in most U.S. regions, commercial construction did not keep up with their residential housing counterparts, which experienced unprecedented expansion over a relatively short period of time. According to a recent article in the Real Estate Florida 2007 Media Guide, “…active building over the past few years has resulted in oversupply in the residential sector, the growth in the industrial, retail, office and hotel sectors is a different story.”

The unique story in South Florida is that, unlike its residential property counterparts, not only is land for commercial property development becoming increasingly scarce, it’s also expensive, with materials and labor costs ever rising. Combined, these attributes create strong, on-going demand for existing commercial space nationwide, but particularly in the most lucrative U.S. markets.

The financial advisory firm Deloitte also released a 2008 report indicating that commercial real estate remains attractive even given current economic conditions. The reason? Unlike during previous economic booms, commercial did not overbuild, as housing did. Deloitte also notes that commercial real estate will remain strong as the dollar remains weak. Foreign investors will continue to buy commercial, keeping prices strong.

Long a popular vacation and retirement region, we believe that Florida will especially benefit from an influx of Baby Boomer retirees. As a popular Sunbelt state with an ever-growing population, moderate cost of living, and low taxes, the South Florida region’s commercial property prospects are even more lucrative than national averages.

With the first generation of Baby Boomers retiring this year, Florida is an increasingly popular second home and retirement destination whose burgeoning population growth will require continued business support. Unlike its northern or mid-western counterparts, Florida even tends to profit during times of economic recession, as residents of high tax and high energy cost states, seek haven in the low energy, low tax sunshine state.