Supply and demand are in near-equilibrium in most real estate markets, analysts say.
Florida's real estate markets have recovered nicely from their stumble in the early 1990s to close the decade with a terrific run. Indeed, in the waning days of 1999, there were ample snapshots up and down the Florida peninsula of a healthy industry:
- Foreign and domestic buyers snapping up three-quarter million-dollar condos in Key Biscayne as fast as developers can build them.
- New warehouses sprouting in the industrial district surrounding Miami International Airport.
- Enterprising developers converting Tampa shopping malls into offices to meet job growth.
- Three new office towers emerging in Orlando's downtown, and continuing construction of office buildings in Jacksonville's fast-growing Southside corridor.
Even the Panhandle got in on the action, with St. Joe Co. breaking ground on several promising planned communities and resorts on the Gulf of Mexico. And, unlike the late 1980s, lenders have been noticeably restrained in financing questionable projects. The result: relatively little overbuilding. "Supply and demand are in equilibrium," says Paul Puryear, a real estate analyst at financial services firm Raymond James & Associates in St. Petersburg. Throughout Florida "the four major real estate groups -- residential, office, industrial and retail -- are in good shape."
Still, as with any good thing, a nagging question persists: How long can it last? A strong stock market and relatively low interest rates have helped fuel residential sales. Good job growth, especially in the swath of Florida running from Tampa Bay through Orlando to Jacksonville, has prompted development of office buildings.
Longtime Florida real estate observers say overall conditions -- including a moderation in stock prices and job growth and the absence of any unforeseen economic shocks -- favor a steady, if not overly robust, real estate market this year. Pockets of weakness may appear in different segments of the market, and as investors in real estate investment trusts (REITs) can attest, other investments may offer bigger returns. But all in all look for stability. "I think over the next 12 months we'll be in the same stable range," says Paul Ahmed, director of Capital Markets at Terranova, a Miami-based real estate services firm.
Office vacancy rates are indeed inching up in most of Florida's major job centers, as business expansion hustles to catch up with new office space coming online. Capital should be available this year for well-planned projects. But it won't be as freely available as it was in 1998 before the financial crises in Russia and Brazil slowed mortgage lending. "We see a disciplined supply of capital," says Puryear.
Sales of higher-priced luxury homes and condos are expected to remain strong, assuming the stock market doesn't tank. And the pricey homes will continue to get pricier as construction costs keep climbing. One of the big real estate themes this year throughout Florida will be the redevelopment -- or enhancement -- of existing properties, especially near water. "South Florida may be the most interesting market to watch next year," says Lewis Goodkin, president Goodkin & Associates, a real estate consulting firm in Miami. "We'll see urban development and infill" as developers and consumers speed up an "eastward ho" movement.
Soft spots could include trouble in the lodging sector, where there may be some overbuilding, particularly in Miami. There's also been strong building of retirement communities as traditional homebuilders like Lennar have jumped into that sector.
REGIONAL SNAPSHOTS
Southeast
Despite the knocks it takes for being overcrowded and congested, southeast Florida, particularly Miami-Dade and Broward counties, should continue to see plenty of new development this year.
Demand for industrial and warehouse space has been particularly strong, and construction of new projects is expected to continue. Industrial won't be the only type of development. "There will be significant office development and mixed-used projects built in the southern portion of the state," predicts Lewis Goodkin, president, Goodkin & Associates, a Miami-based consulting firm.
The same goes for Miami's condo market, which is being fueled by domestic and foreign buyers. The Ocean Club, a luxury condo project on some of the only remaining waterfront land available on Key Biscayne, has sold three-quarters of its 800 units, says John Temple, co-developer of the project and former president of Arvida. "This has been one of the most successful projects in south Florida," Temple says. "There just isn't any waterfront property left."
Developers also will continue to fill in urban areas with new developments or rehabs of existing properties. In Boca Raton, for example, Florida's first planned community -- Royal Palm Country Club, built in the 1950s and '60s -- is being redeveloped. So far, two-thirds of the units have been torn down and replaced with new construction.
The big question, however: Will developers spoil a good thing and put up too many new buildings? There's already some concern that hotel operators are building more new luxury hotels in Miami than the market can support.
Southwest/Tampa Bay
Strong job growth, especially among call centers, has continued to create demand for new office space in the Tampa Bay area. In the first nine months of 1999, developers added another 2.5-million square feet of office space. Almost half of the new space came from the conversion of Tampa's East Lake Mall into an office complex called Netpark.
During the same time period, business tenants absorbed 1.3-million square feet of space in the Tampa Bay area. By comparison, net absorption of office space in all of 1998 was 850,000 square feet, according to CB Richard Ellis, a national real estate services firm with offices in each of Florida's major markets.
Elsewhere in southwest Florida, Naples north to Fort Myers should continue to be one of the state's hottest residential markets, especially for higher-priced homes and condos. Watermark Communities Inc., for example, took 91 deposits within a four-hour period for $1-million-plus condo units at Montenerro, a 138-unit residential tower. Among other projects, WCI is also building The Seasons, a 42-unit condo tower in Naples' Bay Colony, where a 12,000-sq.-ft. penthouse will sell for in excess of $6 million. "This is a very hot market," says Mike Curtin, WCI's senior vice president of marketing and sales. "It's a mecca for well-to-do people from all over the world."
Central
Like most big cities in Florida, Orlando has seen its share of business migration from the inner business districts to surrounding suburbs. But that hasn't stopped developers from building new offices downtown. There are currently three office buildings under construction downtown, including the 1-million-sq.-ft. Lincoln Plaza. Slated to open in July, the building was 20% leased as of early November. Meanwhile, Capital Plaza (341,650 square feet) was 20% leased and CNL Center (363,000 square feet) was 75% leased. The new construction is expected to push up vacancy rates, says Elizabeth Sherrod, senior information manger in the Orlando office of CB Richard Ellis.
In November, Orlando's downtown vacancy rate stood at 7.25%. If the new office space coming available this year doesn't lease up by this summer, the vacancy rate could climb to 15%. "We have a healthy market," Sherrod says. But "by putting new product out there vacancy rates will inch up a little."
Far from downtown Orlando, construction crews have been just as busy erecting new office buildings and shopping malls. In Lake Mary, Heathrow International Business Center continues to grow at a rapid clip. The center, begun in 1997, now has 20 office buildings, housing such companies as the American Automobile Association, Seagate Technology and Convergence Communications.
Northeast
Not to be left behind in the development game, the Jacksonville metro area also has been adding new office and industrial space, mostly in its suburban markets, at a good pace. The overall suburban office market vacancy rate in the third quarter last year was nearly 12%, up from 10.6% in the previous three-month period, mostly because of new development, according to CB Richard Ellis figures.
Some 15 office buildings with some 1.2-million square feet of space were expected to break ground in late 1999 and early 2000. Most of this new construction is slated for the fast-growing Butler Boulevard corridor, south of downtown. Beyond that, Lou Nutter, first vice president of CB Richard Ellis in Jacksonville, says he doesn't "see a lot of definitive plans for new (office) buildings in 2000."
Third-quarter vacancy rates for industrial properties fell to 5.7%, from 6.63% in the second quarter of 1999, reflecting continued strong demand for these types of properties. Expect to see an influx of new light industrial space to come available in the first three months of the year. In fact, Jacksonville's strong industrial market has attracted some newcomers. Pizzutti Development Co. plans to build 1-million square feet of speculative space on a 100-acre tract of land located on Jacksonville's Westside.
Northwest
The big story in northwest Florida this year will continue to be St. Joe Co.'s various projects. Development of the former paper company's planned communities in Gulf County is expected to pick up momentum in early 2000. The Jacksonville-based company's centerpiece project in the Panhandle is WaterColor, which is being billed as a "Southern coastal landscape." So far, the company has sold 214 lots in the $300,000 price range. Home construction is expected to begin in February or March, along with the development of a 60-room high-end hotel and several restaurants.
Then, three months later, St. Joe will begin construction of a 100-unit luxury beachfront condominium project in a nearby development called Camp Creek. In Tallahassee, St. Joe's Southwood development is awaiting completion of a deal with Florida State University to manage an on-site high school.