Enduring commercial, residential markets continue to evolve

BY ROGER WILLIAMS
[email protected]

In weather, in politics, in unemployment, in education and in health, this has been a difficult and sometimes damaging year.

But significant trends in both residential and commercial real estate, though unpredictable going forward, are encouragingly robust — with a few noteworthy exceptions — according to data gathered and analyzed by LSI Companies Inc., working with the building industry associations of Collier, Lee and Charlotte counties.

While other numbers see-sawed unhappily in the first six months of 2020 — airport numbers plummeted while unemployment numbers shot up — real estate numbers defied expectations.

Building permits in the three counties were on track to another robust year, for example, with 8,789 issued in the first six months of 2020, and sellers of preowned homes were getting full value.

In the previous 12 months, 17,600 new permits were issued across the three counties.

What happens next is anybody’s guess, says Randy Thibaut, founder and CEO of LSI — but he and other experts are cautiously optimistic.

“For the remainder of 2020 and 2021 we’re dealing with uncertainty. Everything is dependent on the end of COVID,” overcoming social unrest, and voting for pro-business candidates, he said in a video presentation.

“The crazy part is we saw a spike in sales nationally and locally in the midst of COVID and unrest,” he noted. He attributes the market’s steady success in part to “government props.” Those include $1.5 billion in loans to businesses through the federal government’s Paycheck Protection Program just in the region alone, a moratorium on rent evictions, and the Fed’s move to drop interest rates to 3% or below.

In addition, “COVID hasn’t slowed down new zoning. And in land transactions, for first time in 2020 we experienced a drop in closed transactions, and an increase in new pending-deal activity,” he said.

“Closing these deals will be mostly predicated on clear certainty that we’re past COVID and social unrest.”

His view is echoed by other veteran analysts in the market.

“The residential market in particular has been stronger than many of us anticipated,” said Tom Buckley, co-owner of McWilliams-Buckley and Associates.

“June and July are traditionally not as active as March and April, but this year they were unbelievably strong. Interest is up, and more properties are being purchased sight unseen, so to speak. Urbanization is under attack.”

Justin Thibaut, Randy’s son and LSI’s president, an expert in the commercial market, summarized conditions first by pointing to the indivisible relationship between residential and commercial real estate, and the close relationship between all real estate markets and the Southwest Florida environment.

“The fog is being lifted. We’re now seeing new and different retail champions emerge based on how we do business.

Industrial continues to thrive and space is being delivered to our emerging market.

Office-spec buildings have emerged in a market that has seen very little being delivered (in recent years).”

But more sobering is this fact, he added: “The hotel industry is facing an unprecedented setback.”

Now, in a market supported by tourism, retirement, recreation and outdoor space, “business owners must practice the three R’s: React, Rethink and Recover.”

Other experts in the region echoed those notions.

The real estate market’s surprising strength springs in part from “scarcity, (with) only so much land in the premium locations — beachfront, Gulf access, golf community near the heart of a business district,” suggested Michael Polly, president and managing partner of Royal Shell Real Estate.

“The interest rates buyers can borrow money at are the best I’ve seen in my lifetime (2.5% or even lower in some cases), and urban living is not as attractive in our world today,” he said.

That may provide an advantage to Southwest rather than Southeast Florida.

Budge Huskey, president and CEO of Premier Sotheby’s International Realty, pointed to a counter-intuitive acceleration in sections of the market as a result of COVID.

“While COVID (remains) a serious concern and travel is restricted, the reality is that the impact on real estate sales was short-lived. We began seeing a rebound in May which not only represented the natural release of pent-up demand, but something far more pronounced in the way of heightened interest and buying activity as a direct result of COVID.

“What we could not expect was the acceleration of life decisions brought on by COVID and the behavior of buyers who decided it was time to make the move. COVID, despite its profound tragic consequences, has proven a catalyst for real estate as people escape the density of urban cities, the challenges of conflict, the potential of fiscally challenged municipal budgets, and so on, for the low-density, outdoor, low-tax environment and amenity rich beauty of Southwest Florida.”

The busiest builders by permit numbers this year include such companies as Lennar, Brooks & Freund, DR Horton and Pulte.

Communities with the highest residential permit numbers included Babcock Ranch, The Place at Corkscrew, Naples Reserve and Ave Maria, according to the LSI report.

The effect of low-interest rates for median income households is not just more sales but higher priced home sales, the report shows. For example, when interest rates run 3.5%, home prices in Collier average $311,127, in Lee they average $251,652, and in Charlotte they come in at $233,176.

As rates rise, average home purchase prices go down.

“We expected a bigger slowdown, but we saw strong resale and new construction,” Justin Thibaut said. “And permit activity picked back up in June and July. We’ve pulled quite a few permits in the multifamily arena, too. And we think the builders in our market have adapted beautifully to vertical sales and on-line tours.”

The commercial market, meanwhile, is a creature experiencing sudden, non-gentle evolution, he suggests.

“The biggest factor on the commercial side is, we’re seeing a huge change in the retail and commercial world. Some are shuttering their doors and exiting, retailers already in trouble to start with, or who were highly leveraged, or offering services beginning to be outdated, and they weren’t adapting to trends.

“And we’ve seen some come out victorious. Previously, discount grocers were kicking butt. Now since they were dubbed ‘essential,’ it’s all grocers. And everyone is adapting quickly to a change in how they deliver goods.”

In the future, predicted Mr. Buckley, “the sky’s the limit. Just look at development out east of Naples or North Fort Myers or Punta Gorda and Port Charlotte, where it never pushed beyond I-75. See how far east you can go now with houses and communities.”

In Mr. Huskey’s view, “COVID has exposed disparity. (In effect) there are two entirely different levels of the economy. In commercial real estate, prospects are very defined by specialty. Some areas remain strong. But we know retail overall, and office space in urban markets is severely challenged.

“In the residential real estate, millions are facing the prospect of eviction or foreclosure in the absence of further assistance. Yet the resort and second-home markets are exploding with additional activity from the affluent.

“Overall, between the ongoing desirability of our market, combined with the ongoing stimulus (aid) for COVID and record-low interest rates, we remain very optimistic about the future.

“I’m just hoping some of the disparity is diminished and we all move forward in a positive direction together.”

(via Florida Weekly: https://naples.floridaweekly.com/articles/robust-real-estate/)