Bright Spots in a Dim Market! 

With so much negative news surrounding real estate; lost construction jobs, reduced property values, diminished tax revenues and abandoned construction sites one might think that all development has stopped dead in its tracks.  Two major retail developments are bucking the norm and shining a light to Sarasota’s future.  The most notable is the University Town Center, a 1.68 million square foot (Sarasota Square is just over 940,000 sq ft) regional mall at University Parkway and I-75 that will include retail, office, residential and hotel.  With anchors like Nordstrom’s and Neiman Marcus, this development will add a welcome new dynamic to Sarasota’s retail. 

The other major development consumers are anxiously awaiting is an expansion of Westfield Southgate Mall.  The owners of Westfield have been working through the tedious design and permitting process intending to expand this very popular and extremely well located mall by 250,000 square feet.  Excluding St Armand’s Key, Westfield Southgate Mall commands the highest retail rents in Sarasota, exceeding $50 per square foot and boasting strong sales volumes justifying the rents. 

This confidence in the Sarasota market is a pleasant relief in a difficult economy and we all will appreciate these fine developments once completed.  Neighboring property owners are smiling the most; as high tides raise all boats – so too will these developments increase the value of neighboring properties.

Time to Buy

Recall the mantra “buy low and sell high.”  Well, this is a great time to buy Sarasota commercial real estate.  Think of all the times in 2002-2006 when you heard, “I wish I had purchased that property a few years ago when the prices were lower.”  Now prices are lower almost across the board.  Now and for the next several months is the time to act.  If we are not at the market bottom we are so close we can feel the cold floor.  Waiting to pick the exact floor is nearly   impossible; as we only really know the bottom in retrospect.

Impact of Development

The near stop in the development industry is painting a broad ugly brush across the Sarasota/Manatee economy.  We can sadly correlate the absence of construction cranes on the Sarasota skyline with economically strapped electricians, plumbers, masons, roofers, carpenters and all the other building trades that are impacted by the development slow down.  Look a little closer and we see many more development associated businesses also suffering. Real estate attorneys, brokers, bankers, appraisers, environmental consultants, architects, engineers - civil, structural and mechanical, land planners and of course local governments are all feeling the pinch of an eviscerated economy absent of development. 

Look even deeper and we notice local restaurants that once depended on regular local support from a vibrant economy hurting and in some cases closing.  Some health care providers who helped heal injured construction workers are also seeing a steep decline in business.  These businesses and government are operated and staffed by our neighbors.  Although many citizens were frustrated by the frenzied development pace and ever changing landscapes of 2002-2006; the economic consequence of an economy absent of development is extremely painful to many people. 

The Office Market

The downtown Sarasota office market still boasts a respectable vacancy rate of around 8%.  Unfortunately, this vacancy rate is about 4% higher than two years ago, and with only modest demand we may see a point or two higher.  Looking for a lease deal – now is the time.  The high demand office locations near I-75 are feeling the economic crunch reverberating from the slow down in the development industry.  The vacancy rate is reaching 15%, a high not seen in years as many development businesses downsize or vacate.  The good news is that this area will recover quickly as the economy turns around and businesses again will desire to locate along the I-75 corridor with its easy access to employees.

Foreclosures

The residential market is experiencing increasing numbers of foreclosures.  While most of the foreclosures are in the moderately priced homes, some waterfront mansions are being auctioned or foreclosed as developers and speculators who did not respect the market are now seeing their values plummet and buyers vanish.  The commercial market is not without its pain.  Expect foreclosures on some of the sites purchased for condo developments or residential developments that never happened, but there will be few foreclosures in other commercial market sectors.  The foreclosure of some of the high profile condo development sites will be a positive for the community as this is the first major step in turning the many vacant sites to a productive use.

Commercial real estate prices adjusting

Lack of demand rather than over-building is the primary reason some commercial real estate prices are lowering.  The exception is office/warehouse condominiums and office condominiums where some over-building occurred.  Prices for office/warehouse in prime locations reached $175 per square foot and are now lower than $120 per square foot.  Office condos downtown sold for over $400 per square foot and now prices only flirt with the $300 per square foot mark.  The lack of demand by fewer buyers and tenants has moved prices down which makes for great buying and leasing opportunities.