3rd Quarter 2024

The Sarasota commercial real estate market has exhibited a noticeable deceleration compared to the vigorous activity seen in 2020-2022; however, it has not come to a halt or regressed. Our market is being driven by three primary forces. Firstly, Florida’s seemingly relentless population growth, primarily driven by inward migration from New York, California, and Illinois, continues to fuel residential development, particularly in the multi-family apartment segment. This population surge also has a positive ripple effect on other sectors, including retail, dining, and businesses, as they benefit from the increased consumer base. Nevertheless, heightened migration has tapered off to slightly fewer than 1,000 new residents per day.

Secondly, the impact of interest rates cannot be overlooked. Those who secured commercial real estate loans 3-8 years ago did so at interest rates of 2%-3.5%; today, commercial rates hover around 7%, marking a substantial increase. Many borrowers with adjustable mortgages are now facing adjustments to current rates at 7% and above, which poses significant financial challenges for investors and developers, hampering their ability to fund new ventures and manage existing projects. The swift escalation of rates from 3.5% in 2022 to the current 7%+ has added immense pressure.

Thirdly, the specter of inflation looms large. Inflation triggered by government expenditures, combined with exorbitant energy costs, has resulted in price hikes across various sectors, including dining, groceries, apparel, fuel, and services. Unfortunately, wage growth has not kept pace with these rising costs. These factors—one positive and two opposing—have prevented our market from slipping into a real estate recession, but have restrained property appreciation.

The rental market displays relative stability even with the increased demand from population increase and soaring construction costs which push up rental rates for new apartments and commercial properties. Foreclosures are expected as commercial mortgages reset to higher rates, placing strain on owners who may struggle to meet the increased debt service. Though Florida may not witness the same volume of foreclosures as New York City, even a limited number of foreclosures will likely impact our marketplace.