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By Gary Tasman The ink is now dry on the $1.2 trillion federal Infrastructure Investment and Jobs Act (IIJA). The bipartisan bill represents the most momentous investment in U.S. infrastructure in more than 50 years, not only reauthorizing $650 billion in already appropriated funding, but also designating an additional $550 billion for new infrastructure projects. These include improvements to transportation infrastructure such as highways, bridges, public transit, ports and airports. The increased funding also supports efforts to shore up the nation’s electric grid, broadband, and water infrastructure. Infrastructure reform is good news for business and the economy as a whole. The ability to transport goods and services—as well as employees—from one location to another is a key component of business efficiency. Improvements to infrastructure not only bolster productivity and reduce production costs, they also create jobs, both short-term and long-term. Infrastructure investment also has a significant impact on commercial real estate. Here in Southwest Florida, the path to commercial and residential development typically follows infrastructure investments. As our region has matured and expanded, the trick to finding the next hot market has been to follow the municipal planning process, in particular transportation and utility improvements. Infrastructure and Growth in Southwest Florida Examples can be seen across Southwest Florida. In just two decades, Collier Boulevard in Naples has developed from a rural two-lane road to a bustling six-lane divided highway. With the improvements to transportation infrastructure and accompanying utilities expansion, Collier Boulevard is now a bustling commercial and residential corridor with gated communities, large shopping centers, and a 100-bed acute care hospital—and the area is still growing. In Lee County, we’ve seen similar growth just east of Interstate 75. Only a little more than a decade ago, Southwest Florida International Airport and Florida Gulf Coast University were outliers, with little other development along Treeline Avenue and Ben Hill Griffin Parkway. Today, tourists flying into RSW or alumni returning to FGCU for a visit after a long absence may not even recognize the area. Further north, we can expect to see similar infrastructure-fueled growth along Burnt Store Road between Cape Coral and Punta Gorda, where utilities expansion and road-widening projects will foster more residential and commercial growth. Additionally, investments to the Punta Gorda Airport are sparking similar progress in Charlotte County. The Big Picture: Infrastructure and Commercial Real Estate Although the final destination of the IIJA funds has yet to be determined, we can expect heavily-populated states like Florida, California, Texas and New York to receive the greatest amount of funding from the IIJA. According to Rebecca Rockey, Cushman & Wakefield Head of Economic Analysis & Forecasting, the most obvious CRE beneficiary of infrastructure improvement is industrial real estate, because “…nearly all goods that U.S. consumers purchase weave their way through a domestic maze of transportation and warehousing.” However, Rockey points out that the true impact oncommercial property is through the indirect effects of infrastructure investment on the economy, output, and productivity. The ROI of infrastructure investment can be impressive. Over ten years, each million-dollar increase in public infrastructure investment is expected to yield nearly $700,000 of additional Gross Domestic Product. Moody’s Analytics estimates that the GDP could grow by 3.5%, or $758 billion of output, over the next 10 years. As a result, Cushman & Wakefield analysts expect to see total demand for all commercial real estate sectors (office, industrial, retail, and multi-family residential) to climb by about 1.2% across the nation. In an already hot commercial property market like Southwest Florida, this number could be even higher. How will the IIJA influence your commercial property investment strategy? The Commercial Property Experts at Cushman & Wakefield | Commercial Property Southwest Florida have the knowledge and experience to help guide your decision-making process. Call our team at 239-489-3600 or contact-us.

By Gary Tasman We closed 2021 with a discussion on inflation and interest rates, and how we anticipate these factors will influence leasing and development in our market. As we enter the new year with the expectation of slowing economic growth and continued high inflation, we want to take a closer look at how the current economy will influence our working habits—and how commercial property trends will change as a result. Inflation and Spending As we know from our own personal finances, people tend to change their spending habits when inflation drives prices higher. We may buy fewer name-brand products, eat out less frequently, and cut back on luxuries like vacations. To manage our expenses long-term, homeowners may even choose to downsize to a smaller house. Businesses are no different. Inflation forces businesses to also make more prudent buying decisions, spend less opulently, and manage costs aggressively.  For businesses, however, there is an additional complicating factor. Inflation and the resulting increase in the cost of living often necessitates higher pay for workers. For businesses attempting to manage costs, this presents a significant challenge in any inflationary year.  Further confounding the matter in 2022 is our tight labor market, in which competitive pay will be vital to attracting new employees and retaining existing ones. How Workplaces Will Navigate Inflation With pay cuts presumably off the table, how will employers contain costs while remaining competitive in the marketplace? One of the most obvious cost-cutting measures is to reduce operating costs like rent and utilities. This can be done in one of two ways: either by moving to a less costly facility or by reducing the need for office space altogether. Business owners leasing high-rent modern office spaces may need to evaluate whether a “Class A” image is vital to their operations. An office in a Class A building gives clients a lasting impression and provides top-notch amenities to employees. However, the operating costs can be prohibitive for businesses that don’t rely on prestige as a differentiator. Businesses will need to determine the importance of their image when evaluating costs. The second potential method of reducing rent and utilities is to transition to a remote or hybrid workforce—a work structure many of us are already familiar with. Gallup notes that as recently as September 2021, 45% of full-time employees in the U.S. were working at least partly remotely, and more than two thirds of white-collar workers were working from home at least part-time. Remote and hybrid work can save companies an average of $11,000 per employee over the course of a year, according to Global Workplace Analytics, and the majority of this savings is related to real estate. While it’s unlikely that most employers will switch to a fully-remote workforce, the need for cost management will compel many businesses to switch to a hybrid model to reduce operating costs until the inflation rate stabilizes. How are you and your business planning to manage through inflation? If your strategy involves changes to your workplace or other facilities, our team of commercial property experts at Cushman & Wakefield | Commercial Property Southwest Florida can help you navigate the options available to you. Contact us by calling 239-489-3600 or contact-us.

By Gary Tasman We’ve all noticed the change—at the supermarket, at the gas pumps, and nearly everywhere else. Whether it’s the cost of your Christmas tree or your New Year’s Eve champagne, prices are significantly higher today than they were just one year ago. In fact, the Consumer Price Index has climbed 6.8% in just the last year, the largest inflationary jump we’ve seen since 1982. Initially, the Federal Reserve had categorized our current economic situation as “transitory inflation.” In other words, a temporary and predicted result of the pandemic and its impact on our economy. In the last month, however, Fed Chairman Jerome Powell has admitted that our current inflation will likely last longer than initially anticipated. With the knowledge that we may need to endure inflation for longer than expected, it’s time to examine how inflation will impact commercial real estate. Real Estate as a Hedge Against Inflation Many investors purchase real estate and other tangible assets to hedge against inflation. While most investments, including stocks, tend to react negatively in inflationary conditions, the value of property reacts proportionally to the inflation rate and appreciates as inflation climbs. In other words, if you have a loan on a commercial property, and have locked in a low interest rate on that loan, the value of your property will continue to rise with inflation, even as your cost remains the same. Knowing the relationship between inflation, costs, and interest rates allows us to make other predictions about the impact of inflation on commercial real estate. The impact of Supply and Demand on Leasing Our economy is influenced by countless factors, including supply and demand. Some of our current inflation has been caused by the supply chain issues that have plagued the globe for well over a year. When materials and products are scarce, prices of those items increase. And when prices increase, typically the cost of labor also escalates. Increasing labor and material costs will force some developers to put the brakes on building new properties. As a result, demand for existing properties will climb, and property owners will be able to raise rental rates. At the same time, we can also expect to see owners offering shorter-term leases. While a shorter term doesn’t offer owners the same stability in occupancy over time, it does provide owners with the opportunity to adjust rental rates more frequently and take advantage of the increased demand for their space. The Impact of Inflation and Interest Rates on Market Share Just as increased costs make it more difficult for developers to build, increasing interest rates will make it more difficult—or at least less advantageous– to borrow money. The Federal Reserve is expected to raise interest rates as many as three times next year and anticipates raising rates at least three more times by the end of 2024. The combination of higher inflation and higher interest rates will not only cause developers to build less, but existing property owners will likely choose to hold on to their assets. In a rapidly developing real estate market, property owners lose market share every time a new building opens its doors. However, when development slows, owners maintain their market share. Again, this will give owners the upper hand when setting rental rates and terms. How long will these conditions last? Just as it has been difficult to predict how long the coronavirus pandemic will last, it is also a challenge to forecast how long our pandemic-influenced economic conditions will prevail. It has become apparent that inflation is not just a transitory blip on our economic radar, and we’ll be dealing with the repercussions of rising prices for at least another year. While some of us who recall the economy in the 1970s are anxious about our current conditions, history is unlikely to repeat itself in another “Great Inflation.” The economic drivers behind our current conditions are different from those in the 1970s, and economists are better prepared to manage inflation than they were 40 to 50 years ago. The Fed will attempt to temper inflation through adjustments in interest rates and reduced bond purchases. However, Fed Chairman Powell has acknowledged that our high consumer prices will continue well into summer 2022, and investment group Goldman Sachs is projecting that inflation will get worse before conditions begin to improve. For those who currently hold commercial real estate and those who are considering adding property to their investment portfolios, our current economy provides opportunity. To learn more about how the commercial property experts at Cushman & Wakefield | Commercial Property Southwest Florida can assist you in your property investment strategy, call us at 239-489-3600 or contact-us.