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By Gary Tasman The year 2022 is one we won’t soon forget here in Southwest Florida. We started the year with record-breaking inflation, as supply chain issues, labor shortages, and the costs of materials all drove prices higher. At the time, we predicted a busy year for both land and development deals, thanks to record-low supply. We also predicted that the then-anticipated interest rate hikes by the Federal Reserve Bank would flatten prices and slow sales of both commercial and residential properties.  What we didn’t predict was Hurricane Ian– or how the worst disaster in Southwest Florida history would impact our economy and our property market. As we look ahead to our commercial property predictions for 2023, it would be impossible to ignore Ian’s impact. Unarguably, Hurricane Ian changed the course of development in Southwest Florida. With more than $5 billion in estimated damages in Lee County alone, our region is focused not just on building, but on rebuilding. In many ways, the hurricane will accelerate growth in our region, thanks to infrastructure funding that will bolster our emergency preparedness as a region. Where will we see growth in 2023? Continue reading for our five commercial property trends to watch. Affordable Housing on the Fast Track Affordable housing has been a concern across the state and particularly in Southwest Florida for years. The Florida Housing Coalition announced this year that there was a statewide deficit of close to half a million homes that are affordable to lower- and middle-income families. The agency estimates that in Lee County, one-quarter of homeowners are cost-burdened, meaning they spend more than 30% of their annual income on housing expenses. The numbers are similar in Collier (25.7%) and Charlotte (23.4%) counties. Renters carry an even larger burden. In Lee, 48.3% of renter households are cost-burdened, with Collier County renters at 50.2% and Charlotte renters at 52.3%. Although we anticipate that rent growth and home prices will level off, we don’t foresee prices falling down to pre-pandemic levels. The demand erosion caused by the national economic slowdown will largely be offset by expansion in our area due to the hurricane. With more than 5,000 homes destroyed in Lee County alone (and countless others rendered with major damage), demand will remain high for both long-term and temporary housing. Initiatives from Fannie Mae and Freddie Mac will work to alleviate some of our affordable housing woes, and new multifamily developments coming online will add much-needed supply to our housing stock. However, our community’s leaders know that to truly solve our region’s housing crisis, we need to increase supply, and create equilibrium between supply and demand. Unfortunately, increasing our supply of housing and rental stock will take time, and 2023 is too soon to see relief. Construction costs are high due to shortages of both materials and labor, and the cost to borrow money for development also presents a challenge. However, Hurricane Ian has made our housing conundrum more urgent than ever, and we expect that local governments will be motivated to take action. The Reimagining of the Office Part of the reason for our region’s housing woes is the population explosion we experienced during the pandemic in 2020 and 2021.  Office workers with newly-remote positions were given the opportunity to work from anywhere in the world. Many chose to live in paradise and relocated to Southwest Florida. As of 2022, 26% of American employees work entirely remotely, and nearly two-thirds of U.S. workers are at least partly remote. This creates a challenge for office-based employers, who will need to re-think their work model or face the possibility of losing employees to companies with more flexible policies. Another, more local, factor will also force office occupiers to reconsider their model. Prior to the hurricane, our region’s supply of commercial real estate was already limited. The Southwest Florida office property vacancy rate was a shockingly low 4.8% entering the fourth quarter of 2022, according to our MarketBeats report for Q3 2022. In line with the low supply, office asking rent had climbed to $20.79 per square foot, an increase of nearly 12% from just 24 months earlier. With wages also growing by close to 8% over that same period, employers will need to find ways to cut costs. While it’s unlikely that most employers will switch to a fully-remote workforce, the need for cost containment will encourage many businesses to switch to a hybrid model to reduce operating costs and satisfy employee desires for more freedom. And while hybrid work may reduce some demand for office space in our area, we predict that some of our more antiquated commercial stock will be redeveloped into industrial space or even multi-family properties to satisfy the region’s needs. Pent-Up Demand for Mega-Resorts Hurricane Ian impacted more than just homes and offices– repairs are underway at numerous hotels and resorts across Southwest Florida. Three of the largest resorts in Collier County, the Ritz-Carlton Naples, Vanderbilt Beach Resort and LaPlaya Beach Resort, sustained major damage. Others in Lee County, especially those on vacation mecca Fort Myers Beach, are either closed for repairs or permanently shut down. As of early November, roughly 40% of Lee County’s hotel rooms still remained closed. With little room for tourists this season, our region will see a substantial buildup of demand for lodging options. Yes, tourism numbers are likely down for at least the next year, but a number of new mega-resorts will alleviate the strain as vacationers and snowbirds begin to arrive in late 2023.  Margaritaville in Fort Myers Beach and Sunseeker Resort in Punta Gorda will be joined by a Four Seasons resort in Naples, all in planning well before Hurricane Ian. Once these resorts come online, we expect that they will produce outstanding occupancy and positive room rates, thanks to the pent-up demand for quality vacation spots. Once these resorts prove the concept, like-minded investors will want to join the party. With tourism still the region’s major economic driver, new resorts will not only bring in

By Gary Tasman There are a lot of reasons to love Southwest Florida: beautiful beaches, abundant activities, and a snow-free environment typically top residents’ lists. But ask the average Southwest Floridian what they dislike most about our region, and you’ll often hear the same answer over and over again: traffic. That response likely wouldn’t survive employees at navigation app developer TomTom. The TomTom Traffic Index, which analyzes urban congestion worldwide, ranks the Fort Myers-Cape Coral area as the 13th most congested metro area in the entire United States, just behind Philadelphia, Atlanta, and Tampa. TomTom estimates that Lee County drivers lose 73 hours sitting in traffic in a year– more than three days’ worth of time. Fortunately, work-from-home initiatives, new transportation corridors, and employers who have relocated to more commuter-friendly locations have relieved some congestion in our region. For those Southwest Floridians still frustrated by traffic, we have good news: More relief is coming from the Florida Department of Transportation (FDOT). Transportation Infrastructure and Population Growth FDOT has been paying close attention to population growth in our region as it prepares for the transportation needs of the future. Between Lee, Collier, and Charlotte Counties, 100 new residents are moving to our region daily. Lee County is one of the 10 fastest-growing counties in the United States, growing 19% in the last decade. All three counties are expected to continue growing at a rapid pace for the foreseeable future. Explosive population growth like ours nurtures demand for new services, new industries, and new jobs. The pressure generated by each of these factors will urge significant investments in transportation infrastructure. For example, as Northwest Cape Coral’s population expands, the widening of Burnt Store Road will allow residents better access to Interstate 75. Other transportation projects in the works promise to relieve traffic at I-75 and Colonial Boulevard in Fort Myers and improve access to the interstate for commuters in Golden Gate. However, I-75 itself is also a focus. FDOT Southwest Connect Program FDOT’s Southwest Connect program takes interstate connectivity a step further than the aforementioned initiatives. According to FDOT, each project within the program is expected to move people and goods safely and efficiently while balancing regional transportation needs with community concerns. The four pillars of FDOT’s program are: interstate improvements to accommodate long-term needs for capacity and mobility; new interchanges to I-75 and accessibility improvements to existing interchanges; enhanced liveability and economic growth through complete streets design principles; and multi-modal accommodations to enhance access, efficiency and safety in transportation. As FDOT works to identify the future transportation needs of our community, it will engage the public and local agencies, including county and city governments. Possible transportation alternatives may include strategies like managed lanes like those dedicated to carpool/high occupancy vehicles, truck-only lanes, or express lanes. Improving access and flow on the interstate will surely relieve some of our region’s traffic woes. However, numerous other initiatives and studies, particularly in Lee County, are focused on reducing the number of vehicles on our roads altogether. Public Transit Initiatives in Lee County A $3.89 million improvement project to LeeTran’s Rosa Parks Transportation Center in midtown Fort Myers is adding four more bus bays and expanding access for bicyclists, pedestrians, and persons with limited mobility. The improvements will be the first of any significance for the facility since it opened 22 years ago, and a welcome sight for anyone who depends on public transit in Lee County. The Southwest Florida Vanpool Program also reduces the number of vehicles on our roads by providing a low-cost, convenient commute. The fleet, provided by Enterprise, includes large passenger vans, minivans and crossover vehicles. The program allows coworkers who live near one another to form vanpools of up to 15 commuters, who share expenses and driving responsibilities. However, the most futuristic of FDOT’s initiatives is the autonomous shuttle program it hopes to implement in the next five years. LeeTran has been identified as a partner transit agency, and a potential route for the driverless shuttle is being identified in downtown Fort Myers. While the initial stage of this program may not make a significant impact on our region’s overall traffic woes, the program itself is evidence of FDOT’s willingness to look at outside-the-box solutions to our area’s traffic woes. Transportation Infrastructure and Commercial Real Estate Naturally, when we talk about improvements to transportation in our region, most of us wonder how they will impact our own daily commutes. However, the importance of transportation infrastructure improvements expands far beyond our own personal convenience. Investment in transportation infrastructure is vital to the health of the commercial real estate market in any community. Residents need access to goods and services, employers need access to personnel, and manufacturers need access to distributors and warehouses. Commercial growth in Southwest Florida has closely followed infrastructure investment, and this trend will continue as our population boom continues. The ability to transport goods, services, and employees are vital to the success of our region’s businesses. With transportation advancements, smart businesses will be able to reduce costs, boost their productivity, and create jobs for the 100 newcomers a day that arrive in our region. How will transportation changes in Southwest Florida impact your business? Are you in the right location to take advantage of our region’s growth? If you’re seeking the answers to these questions, contact the Commercial Property Experts at Cushman & Wakefield | Commercial Property Southwest Florida. Our team of commercial real estate professionals has the knowledge and experience to help guide you and your business. Call us at 239-489-3600 or contact us.

By Gary Tasman If you’ve lived in Florida long enough, you understand the emotional roller-coaster that recovery from a disastrous event like Hurricane Ian can produce. In the days after the storm, it’s easy to toy with the thought of moving to a landlocked state– or at least an interior community. “Never again,” we say.  However, most residents and businesses choose to stay, either out of a love for our Southwest Florida lifestyle, a sense of obligation to the community, or possibly because of sheer stubbornness. The interaction between those who choose to stay, those who move away, and those who seek new opportunities in the region all play a significant role in shaping our commercial property landscape. Supply, Demand and Post-Hurricane Recovery Immediately after a disaster event, property owners and managers conduct an assessment of the impact of the storm. This can include inspecting structures for physical damage and mechanical failures, determining what services and utilities will need to be restored, and assessing what repairs or resources will be needed to restore operations to normal. Difficult decisions are often made during this first phase. Property owners need to determine if damage should– or can– be repaired. Expenses, safety concerns, and other considerations may render a facility beyond repair. For these properties, owners will need to decide whether to rebuild or sell. While you might think that property owners will have challenges selling after a disaster, in actuality, Hurricane Ian will transform our commercial real estate market into an even stronger seller’s market.  We entered the summer and fall hurricane season with an exceptionally tight inventory of office and industrial space available.  At the end of the third quarter, our MarketBeat reports showed an office vacancy rate of 4.8%, substantially below our area’s ten-year average of 7.7% and the national average office vacancy of 17.8%. Industrial properties were even more difficult to secure, with a record-breaking low vacancy rate of 0.7%, compared to 3.2% nationally. Because of the number of properties that were either temporarily or irreparably damaged during the Hurricane, the available commercial inventory will become even tighter. At the same time, demand will spike because of the many businesses that need to relocate to continue operating. This interaction between an already record-low supply and high demand will cause prices on commercial properties to increase. The Impact of Newcomers to Southwest Florida Helping local businesses get back on their feet and find new space has been a priority for the Cushman & Wakefield | Commercial Property Southwest Florida (CPSWFL) team since the moment Hurricane Ian passed our region. Many of our early efforts also included helping government agencies, nonprofits, disaster recovery companies, and others involved in emergency response as they flocked to our region to assist after the storm. CPSWFL was ready to help those who came to help us. For example, we assisted FEMA in securing a sublease of Gartner’s then-vacant office space in Gateway, so that the agency could begin offering recovery services as quickly as possible. Newcomers are also arriving in the form of commercial real estate investors. For the last several weeks, our brokerage has received numerous inquiries from developers prepared to invest billions of dollars in commercial properties in Southwest Florida. At the same time, we are also fielding calls from many property owners with older buildings– standing or not– who want to know what their land is worth before deciding to sell. New builders in our area will receive economic benefits from disaster recovery grants that will allow them to build back better, stronger, and more efficiently. While they’ll need to pay a premium because of our staggeringly low inventory, they will reap the benefits of properties with proven locations and infrastructure already in place. Sellers, on the other hand, will be able to offload their properties in as-is condition and still come out of the transaction in good financial condition, particularly when compared to what they could have sold their properties for before the storm. While some may find it easy to look at these real estate investors as opportunists, their arrival will produce a number of positive benefits for our community. Hurricane Ian’s Silver Lining For the thousands who have lost loved ones, their homes, or their livelihoods in the wake of Hurricane Ian, it may be difficult to believe that there is a silver lining to the storm’s impact. However, one does exist. Most Floridians are aware of the building code changes that occurred after Hurricane Andrew in 1992.  Buildings that were constructed prior to Andrew were built to lower requirements for elevation and construction durability. However, numerous changes at the municipal level, as well as the 2002 Florida Building Codes, have made new construction much safer and more hurricane-resistant. Many of our coastal high hazard areas like Fort Myers Beach, Sanibel, Captiva and Pine Island,  held a disproportionate number of older buildings, constructed before the Florida Building Codes were enacted.  These structures were simply not designed to withstand the level of force that Hurricane Ian brought, and many were destroyed or damaged irreparably.  However, as investors replace this old building stock with new properties, our market’s inventory will be replaced with higher quality, more durable buildings at higher elevations. Better-constructed communities will produce positive impacts on property values and municipal revenues. In turn, this will allow for improvements to infrastructure like roads, bridges, parks and other municipal investments. We’ve seen this cycle happen before. After Hurricane Charley devastated Punta Gorda, the community experienced a renaissance of commercial revitalization along the Peace River that continues to this day. Newer, stronger buildings in our region will also have another positive impact. Our state’s property insurance woes are well-documented. Currently, insurance companies balk to issue policies to those in high-risk areas, and the available policies typically charge extraordinarily high premiums.  However, as the quality of our state and region’s building stock improves over time, the risk of insuring properties in our state becomes lower, and the average cost of a property

By Gary Tasman Whenever a disaster like Hurricane Ian occurs, fraudsters seem to come out of the woodwork, offering to repair roofs, remove trees, or expedite government assistance. And while most of us are on high alert to these types of scams, there are many types of fraud that occur every day without our awareness. One of the most common is real estate fraud, which can impact both residential and commercial property owners, often with devastating consequences. In 2021, real estate and rental cybercrime losses totaled $350 million, an increase of more than 64% from the previous year. More than 11,500 victims were targeted by these scams, to the tune of more than $30,000 in losses per victim. There are multiple types of real estate fraud that bad actors can commit to dupe buyers and sellers. These include wire fraud, land fraud, mortgage fraud and rental fraud. While all of these are significant, we’d like to focus specifically today on wire fraud and land fraud, which have become two of the most predominant forms of deception in the real estate industry. What is Real Estate Wire Fraud? Put simply, wire fraud is a scam that involves the use of telecommunications– and in real estate, this typically means email, although it can also occur via fax, phone, or even text messaging.  In real estate, the most common form of wire fraud will trick a buyer into transferring a large sum of money– such as a good faith deposit, downpayment, or closing costs– to a fraudulent bank account. One survey of title agents indicated that wire fraud attempts occurred in roughly 33% of all real estate transactions in 2020. How does this happen? If you’ve ever purchased a property, you understand how complex the transactions can be. They can involve multiple realtors, mortgage companies, title agents, and even attorneys. As the closing date draws near, there is often a flurry of emails and calls while the final details are worked out. Scammers take advantage of this frenetic situation and send a legitimate-looking email to the buyer, stating that the wire transfer instructions have changed and offering new instructions. The buyer, eager to expedite the closing, wires the money as directed, and doesn’t realize until the next day that the legitimate account never received the funds. Typically these scams first start through a phishing email. Bad actors will send malicious emails to realtors, brokers, attorneys, title agents and similar parties, in the hopes that someone will click on a phishing link and download spyware to their computer. “Once that email is clicked on, you might as well have invited the fraudster to sit behind you and just watch everything that you do,” says David Lanaux, President/Owner of Title Professionals of Florida. “They look at what’s going on, they see the communications getting passed back and forth between themselves and the client, and when the timing is right, because they know when the closing’s going to happy, that’s when they interject and send that client new wire instructions, new information that changes the whole course of the transaction, and before you know it, that money is gone.” Lanaux has become very familiar with real estate fraud.  On the most recent episode of our “What’s Developing in Southwest Florida?” podcast, Lanaux revealed that his company has caught nine attempts at fraud in just the last two months, although not all were wire fraud attempts. According to Lanaux, the Southwest Florida real estate market is particularly susceptible to wire fraud because close to 50% of real estate transactions in our area are cash sales, making scams like these a lucrative proposition. What is Real Estate Land Fraud? Land fraud can also impact both residential and commercial transactions. In this scam, a huckster represents themselves as the owner of an undeveloped property and contacts a real estate agent or broker to sell it, often at a reduced price to encourage a rapid sale. This scam is also sometimes called title fraud. Land and title fraud are most common when the rightful property owner lives out of the country or does not regularly check on the property. An example of this happened in Cape Coral in late 2020, when an out-of-state couple purchased a vacant lot for less than $8,000, below its assessed value. The owner, who lived in France, discovered that her property had been sold out from under her when she didn’t receive her annual property tax bill. She was also bilked out of a Port Charlotte property. Preventing Real Estate Fraud Real estate industry professionals, as well as buyers, sellers, and property owners can all take steps to reduce the incidence of real estate fraud. Cybersecurity needs to be a top priority, as just one malicious link can open the door for scammers. Hackers can and will target anyone involved with real estate transactions, including lenders, attorneys, real estate brokers and title agencies. The Federal Trade Commission offers a number of resources to recognize and avoid phishing scams. Professionals should also alert their clients to be wary of any email that contains wire transfer instructions or other requests for financial information. Real estate agents and brokers should be familiar with the red flags that are common in land fraud attempts. These include sellers who appear out of the blue and are eager to unload a property quickly for less than market value. Other red flags include sellers who are located out of the country or who only want to communicate over email. Lanaux recommends asking for seller identification up front and working with your title company to verify the seller’s credentials. Buyers must be skeptical of any email or text message they receive about wiring a down payment or deposit. If they receive an email with new wire transfer instructions, they should immediately call the purported sender and confirm before clicking any links. Additionally, buyers can provide themselves with peace of mind by doing their own independent research on a property before making a

By Gary Tasman Why Diversity, Equity, and Inclusion Matter Commercial property has never been a particularly diverse field. An often-cited 2017 study by Bella Research Group and the Knight Foundation noted that more than 75% of senior executives of commercial real estate firms in the US were white men. Women rarely held a seat at the commercial real estate table–and people of color were practically non-existent among the C-suite. According to the study, just 1.3% of senior executives in the commercial real estate industry were black men. Yet research has repeatedly shown that a diverse workplace not only makes good sense morally, it’s also a good business practice. At Cushman & Wakefield | Commercial Property Southwest Florida (CPSWFL), we strive to develop and foster an inclusive workforce. We believe that diversity, equity and inclusion (DEI) help to create and strengthen a collaborative and productive team. Internationally, Cushman & Wakefield has a reputation for fostering diversity. The company’s DEI initiatives include employee resource groups for team members who are women, Black, Hispanic or Latino, Asian or Pacific Islander, LGBTQ+, or who have disabilities. In 2022 alone, Cushman & Wakefield was listed in the Bloomberg Gender-Equality Index and as a Best Place to Work for LGBTQ+ Equality by the Human Rights Campaign Foundation. DEI: The Moral Case and the Business Case Although many of us think of “diversity” as a term that encompasses just gender or race, inclusivity goes beyond these boundaries. Yes, a diverse workforce employs people of different genders and ethnicities, but also those of different ages, sexual orientations, education levels, cultural backgrounds, physical abilities, religious beliefs and so on. Even more important, each of these individuals must feel valued, engaged and included in a truly diverse workplace. Of course, inclusive teams are important because diversity is an indispensable social value–it is fair and just. However, as humans, we often naturally gravitate towards people who are most like ourselves, both in our social circles as well as in our workplaces. We simply relate better to people with similar life experiences to our own. While this tendency may be natural, this desire to be with others that resemble us can be a hindrance for businesses. A 2020 study by McKinsey & Company noted that the least diverse organizations were significantly more likely to achieve below-average profitability. Why are diverse teams more successful at business? There are a number of reasons. Diversity Improves Creativity and Decision-Making Members of diverse teams hold different points of view and life experiences. When these individuals provide input on a business situation, the ideas they produce will reflect their experiences and backgrounds. This leads to a more nimble, creative and innovative organization. In fact, inclusive companies are nearly double as likely to be change-ready as their less diverse counterparts and are 1.7 times more likely to be innovation leaders among their competition. Diverse Teams Foster a Culture of Engagement Have you ever been somewhere where you just didn’t “fit in”? Perhaps it was a social club, a neighborhood, a school or a workplace. When we don’t feel like we’re a valued part of something, we become less engaged. Companies that foster an inclusive environment, where different perspectives and experiences are valued, will also foster more engaged team members. Research conducted by Gartner indicates that inclusive environments correspond with higher on-the-job effort, employee retention and individual performance. Diversity Helps Us Understand Our Customers Spending time with people unlike ourselves helps to build empathy and stronger communication with one another, which also translates to more empathy and stronger relationships with our customers. Here in Southwest Florida, our residents come from a broad array of geographic and ethnic backgrounds. As commercial property brokers and property managers, we work closely with a wide range of clients: Owners, investors, tenants and vendors. The diversity of our team provides us with the cultural awareness needed to better understand these stakeholders’ wants and needs. Diversity Leads to Better Talent A 2020 study conducted by Glassdoor revealed that 76% of job seekers consider workforce diversity as an important factor when evaluating prospective employers. Additionally, one-third of job seekers said they wouldn’t even apply for a job at a company that had an apparent lack of diversity. In a time when employers are scrambling to attract and retain their team members, a diverse workforce may be just as important of an asset as competitive pay or a great benefits package. Making Progress Towards a More Inclusive Industry While there is still much room for improvement, the commercial real estate industry is making great strides in improving its DEI reputation. The first-ever global DEI survey of the commercial real estate industry notes that 92% of the firms surveyed had some type of DEI initiative in place. We are proud to be one of those companies that is a champion for DEI. At CPSWFL, we are committed to promoting an inclusive, diverse and equitable environment for our team, not only because of the business advantages of DEI but because it’s the right thing to do. A diverse and thriving workforce fosters new perspectives, creativity and better problem solving for employees, partners and shareholders. This sets a positive example for the entire team, which permeates into the community. Are you ready to work with a team that understands you? Contact the Commercial Property Experts at Cushman & Wakefield | Commercial Property Southwest Florida. You can reach us by calling 239-489-3600 or contact-us.

By Gary Tasman For the majority of residents in Southwest Florida, our lives have chiefly returned to our pre-pandemic normal. Offices, restaurants, retail stores, and tourist attractions are buzzing with activity—and in many cases, they’re busier than ever before. It would be a mistake, however, to think that just because things feel “normal” again that nothing has changed. The ways that we both live and work have actually modified tremendously over the last two years, and our commercial property needs are following suit. Because of our rapidly growing population, some businesses have outgrown their capacity. Other workplaces have less need for space because of a shift to remote or semi-remote work. Delivery services and BOPIS (buy online, pick up in-store) models are changing space needs for retailers including grocery stores and restaurants. As businesses try to adapt to this paradigm shift, many will need to renovate their space or rebuild it entirely to remain competitive. But which of those options should they choose? There are a number of questions to consider when debating converting versus demolition. What’s Your Budget? Perhaps the most important consideration when making a decision of this magnitude is budget. With all other things being equal, remodeling a space is typically going to be a more budget-friendly option than a demolition and rebuild. However, a number of variables we’ll discuss later in this article can challenge that notion. When estimating your demolition or conversion budget, make sure you’re projecting carefully. Inflation, supply issues, and labor shortages have made the costs of goods and services difficult to predict for commercial builders. On a recent episode of our podcast, “What’s Developing in Southwest Florida,” Mark Stevens of Stevens Construction Inc. told us that building costs have recently increased by more than 20%. If rebuilding is your preference, but current economic conditions make you wary, consider this: You have much better control of your budget during a remodel. If your cash flow slows due to a change in consumer behavior or a recession, you have the flexibility to pull the plug on some of your “want-to-haves” and focus your budget on your most imperative needs. While you would also have similar flexibility during a rebuilding process, demolition is a bell that can’t be unrung. What’s the Building’s Age and Condition? The full lifespan of a commercial building is considered to be 50-60 years, depending on the location, type of building, materials used, and other variables. According to a 2018 study by the U.S. Energy Information Association, 46% of the commercial buildings in the United States were built before 1980, meaning they’ve either outlasted their projected lifespan or are coming close to it. Here in Southwest Florida, our commercial buildings are younger than the national average, but many are still creeping up on the end of their functional life. Our damp climate and sometimes harsh weather conditions can also negatively impact building conditions, causing foundation issues, roof damage and structural impairments, many of which can go unnoticed for years. Older structures may need significant upgrades to comply with more recent regulations and building codes. Thirty years ago this month, Hurricane Andrew devastated South Florida and swiftly brought substantial changes to the state’s building code. The Americans with Disabilities Act, enacted in 1990, presents additional requirements that older buildings may not possess. Structures more than 30 years old will likely need substantial and costly upgrades to meet compliance during renovation, making conversion potentially as costly and time-consuming as a demo and complete rebuild. On the other hand, some older buildings have “good bones,” or have been through multiple updates over their lifespans, making them more viable options for a remodel. As an example, older warehouses are adaptable for a number of uses because of their open space and large and accommodating foundations. While the age of a building and its condition are two important factors to consider, there are other variables that can help make the decision between converting and demolition. How Long Will You Need It? Chances are, if you’re making the decision about whether to convert or demolish your commercial space, you’ve already begun to make projections about your future needs. While you don’t need to be Nostradamus and predict every possible contingency, you should have a reasonable expectation about how long you plan to stay in your location. It stands to reason that if you only expect to be in the building for a short period, renovation is likely the smarter option. You may even be able to kick the can down the road on some age-related issues if you don’t expect to need the building for a decade or more. However, if you expect your location to be more of a “forever home” for your business or your portfolio, demolition and a complete rebuild make for a stronger long-term investment. There are two reasons for this. First, you should be able to recoup the typically higher costs of the rebuild over time. More importantly, when you do eventually decide it’s time to sell, you’ll be marketing a much newer building with more modern amenities. Is Sustainability a Concern? Many businesses have adopted ESG (Environmental, Social, and Governance) initiatives to guide their strategy, develop policies and procedures, and reveal growth opportunities. Environmental, Social, and Governance are often referred to as corporate sustainability. In essence, “The less CO2 and waste a company produces and the more it cares about peoples’ wellbeing, the more interesting it is for employees, customers and investors,” explains Ariane Husemann, Cushman & Wakefield’s Head of Sustainability for the DACH region. Because there are no uniform global standards for ESG or sustainability, it can be challenging to determine if a structure fits into a company’s ESG framework. Owners should look at the purpose of the building, the company’s goals, and the facility’s suitability for its employees, along with its potential environmental impact. If sustainability is a concern, converting a facility may be the more ESG-friendly option. Existing buildings, says Lutz Schilbach, Cushman & Wakefield’s Design +

Close to one year ago, 12-month inflation numbers began a steep climb into historic territory, reaching levels not seen in 40 years. At the time, analysts optimistically projected that inflation would be transitory– a temporary result of the pandemic and its resulting economic challenges. However, it quickly became apparent that inflationary measures would remain high for at least a year, if not more, and that commercial property would be impacted by the continuing trend of substantial increases in the costs of goods and services. In December of last year, we looked ahead to 2022 by discussing the potential impact of inflation on commercial real estate, focusing on owners and investors. We followed up in January by outlining the potential impacts of inflation on employers. At that time, analysts were still optimistic that supply chain issues, labor shortages, and high fuel costs would begin to slow by mid-year. However, we’re still continuing to see prices climb, making the cost of living and the cost of doing business higher than many can remember. The 12-month inflation rate reached 9.1% in June of this year. By comparison, the traditional notion of a normal acceptable rate of inflation is a 2% annual increase. Although banking systems worldwide continue to take measures, including raising interest rates, to manage inflation growth, it’s clear that these economic conditions will be with us for some time. For commercial renters, this ongoing inflation may cause significant ramifications. Inflation and Commercial Lease Escalations You can’t turn on the news right now without seeing stories about residential renters who have been priced out of their current homes. With residential leases typically spanning just 12 months, landlords have annual opportunities to raise rents on their tenants. Commercial leases, on the other hand, average five to seven years in length. Because of this, cost escalation for commercial occupiers typically develops slowly and predictably.  Commercial leases typically have built-in rate increases. In some instances, these escalations are tied to the inflation index: As the cost of goods and services increases, so too does the cost of renting that commercial space. However, Cushman & Wakefield economists Rebecca Rodkey and James Bohnaker say that these inflation-based escalations may be the exception and not the rule today: “After decades of inflation stability, many leases have an escalator—a fixed number—based on a historical average of inflation,” they explain. Today, commercial occupiers with fixed escalation rates are benefiting from the current economic environment, as their built-in annual increases are likely much lower than the rate of inflation. That’s great news for occupiers who are in the early or middle years of their leases. However, lessees whose agreements are coming to an end in the immediate future may have significant challenges keeping their real estate expenses within their current price range. Given the unpredictability of our current economic environment, property owners will be more likely to negotiate leases with inflation-based escalations than they have been in the recent past. Inflation and Buildout Costs Tenants leasing new spaces and requiring a buildout should anticipate substantially higher costs in our current economic environment. Prices for construction materials are significantly higher than before the pandemic– in some instances more than double. Compared to February 2020, PVC and plastic piping expenses have increased nearly 130%, aluminum has jumped more than 102%, iron and steel prices have increased nearly 89%, and lumber has jumped almost 50%. In some markets, lessees may be able to negotiate tenant improvement allowances or even buildout rent exceptions– but typically these are concessions made in soft markets with high vacancy rates. Here in Southwest Florida, our record low vacancy rates have created a distinct advantage for commercial owners. Our local MarketBeats reports show Southwest Florida industrial vacancy at a microscopic 1%, office vacancies at 4.7%, and retail vacancies at 3.8%, all significantly lower than the national vacancy rates of 3.3%, 17.5% and 6.3%, respectively. While some lessees may consider delaying their buildouts until conditions stabilize, they may be in for a wait. Cushman & Wakefield’s Office Fit-Out Cost Guide notes that 96% of commercial contractors expect supplier costs to increase over the next six months, with the most consequential cost increases anticipated in fixtures, equipment, and furniture. Inflation and Base Rent When it comes to base rents, the impact of inflation may be overrated. According to Rodkey and Bohnaker, evidence suggests that market conditions drive rent patterns more significantly than broader inflation. This is good news for tenants in much of the country where vacancy rates remain high. However, Southwest Florida’s remarkably low vacancy rates again are creating a beneficial market for owners rather than for occupiers. Evidence of this can be seen in our average commercial office rent rates. In Q2 2022, office property was leasing at more than $20/square foot, an increase of 25% in the last two years. However, retail and industrial rents have been growing at a much slower pace over the last eight quarters. Because these two sectors have been hit harder by labor shortages and the increased cost of goods, the market simply may not be able to bear higher rent costs for retail and industrial occupiers. Navigating Complex Relationships Our current economic environment is complicated, and unlike in days past, our current inflation issues can’t be pinpointed to a single source. The pandemic, U.S. economic recovery, worldwide supply disruptions, labor force changes, energy prices, and even the war in Ukraine each play a role. As a result, it’s difficult to predict exactly when this uncertain period is likely to end. Similarly, when it comes to commercial property, inflation is part of a complex economic equation that also involves lease terms, rent prices, vacancy rates, and buildout costs. Our current economic conditions can create both opportunities and challenges for both owners and occupiers. One thing is certain: In our unpredictable economic environment, planning further in advance is more important than ever.   The Commercial Property Experts at Cushman & Wakefield | Commercial Property Southwest Florida have the local knowledge, data, and experience to help

By Gary Tasman When the U.S. Census Bureau released its new population estimates for cities and towns this May, the numbers weren’t surprising to Southwest Floridians. Lee County was one of the top-ten fastest growing counties in the nation, with an estimated net increase of more than 23,000 new residents in 2021. More than 8,200 of those new residents moved to Cape Coral and nearly 5,900 more migrated to Fort Myers, placing both near the top of the list of the nation’s fastest-growing cities. With that population explosion comes the need for more services to meet the growing needs of our new residents, in particular medical services. Keeping up with our historically fast-growing community’s needs has always been a priority—and a challenge—for Lee Health. Keeping Medical Services Accessible With our most recent population surge, ensuring that medical services are accessible to the community is more important than ever. Recognizing this, Lee Health has $800 million of new capital projects in the works to expand access to hospitals, physicians and specialist services. Other medical providers have taken note of our growth and are also making moves into this market. In the last five years, Lee Health has built a standalone facility for Golisano Children’s Hospital and also expanded Gulf Coast Medical Center by three stories, adding 216 patient rooms, and they’re building a new tower to house intensive care units, dialysis suites and more. Those projects, totaling more than $480 million, have allowed the hospital system to keep pace with our region’s growth, but more is still needed. In 2020 (the most recent year that the Florida Department of Health has published data), Lee County had 281 hospital beds for each 10,000 county residents, placing the county in the top third for access in the state. That number is comparable to Palm Beach County and stronger than other West coast counties such as Collier, Pasco and Manatee. The fact that hospital bed availability has remained competitive is impressive, considering that Lee County’s population growth has risen significantly faster than any of those counties over the past 20 years. Upcoming Lee Health Projects Over the next half-decade, Lee Health’s aggressive plans to keep healthcare accessible include the Lee Health Colonial Campus on Challenger Boulevard between Colonial and Winkler. The $465 million hospital would include 168 acute care beds, 30 emergency rooms, 16 operating rooms and a medical office building. And with 52 total acres available to develop, the site promises plenty of room for growth in the future. The hospital system has acquired an additional 57 acres on Pine Island Road in Cape Coral, one of Southwest Florida’s fastest-growing corridors. “Cape Coral has a population of 200,000 and growing,” said Chief Financial and Business Services Officer at Lee Health System,  Ben Spence. “Where it’s moving is Northwest, outwards from Pine Island and North. The beauty of Pine Island Road right now is that there are so many developments going in, there’s going to be incredible synergies.” Although Lee Health is still determining the best use for the upcoming Cape Coral facility, Spence tells us it will likely focus more on ambulatory care. Options include a free standing emergency room and surgery center as well as specialty services focused around high-need areas such as cardiology, orthopedics or oncology. Health Care Competitors Turn to Lee County Lee Health is not the only hospital system with its sights set on expansion in Lee County. In 2019, Florida removed major portions of the state’s Certificate of Need requirement, opening the state to more competition in health care services like hospitals, and rehabilitation centers. The largest competitor to take advantage of this more competitive environment is HCA Healthcare, which targeted Cape Coral for a new freestanding emergency center on Pine Island Road. Within the next few years, HCA plans to build a hospital with 100-plus beds just a stone’s throw away from Lee Health’s new site on Challenger Boulevard. HCA, a for-profit health system, is the largest in the state of Florida. ShorePoint Health (formerly Bayfront Health) has also ventured into the Cape Coral market, opening a full-service emergency room and urgent care center in Northeast Cape. Competition leads to Innovation As these new competitors enter the market, Lee Health has made strategic moves to both prepare for and engage with potential competition. An example of this can be found with Lee Health’s strategic alliance with the Cleveland Clinic, with whom the system has established a clinical affiliation on its cardiovascular program. “We have opportunities to improve and learn from other systems that are at the top of their class,” Spence said. “Cleveland Clinic is number one in the whole nation on cardiovascular. We want to align with those types of partners.” Another partner new to Lee Health is Alabama-based Encompass Health. The two jointly own and operate the Encompass Health Rehabilitation Hospital of Cape Coral and plan to partner on a similar project adjacent to Gulf Coast Medical Center. Southwest Florida’s needs for health care are constantly evolving as our population grows and our community’s demographics shift. “We know that you need access to health care. It needs to be timely, it needs to be a great experience, the outcomes have to be of the best,” Spence said. “We know there’ll be new entrants and we want to be that provider of choice.” What does this Mean for Commercial Land Owners? With the need for more medical facilities higher than ever, investors with property zoned for commercial professional use are in an ideal position to develop or sell. Our first quarter medical office MarketBeats report notes that economic conditions, combined with six quarters of positive net absorption, have translated into record-breaking vacancies in our medical office market. To hear more from Ben Spence about Lee Health’s growth plans for Southwest Florida, tune in to episode seven of our podcast, What’s Developing in Southwest Florida. Are you ready to take advantage of this unprecedented surge in need for medical office property? Contact the Commercial Property Experts

By Gary Tasman Just six months into the year, 2022 has proven to be a challenging year economically. High inflation, a volatile stock market, a tight labor market and growing interest rates have all created havoc for investors. Commercial real estate, long considered a safe haven in inflationary times, has remained popular among investors– and with proper care and attention can still provide considerable yields for property owners. When commercial property sales topped $600 billion in the U.S. in 2019, it marked the busiest year ever in the sector. And while COVID-19 cooled the commercial real estate market the following year, the downward trend didn’t last long. In 2021, sales topped $809 billion, according to data from Real Capital Analytics– a whopping 35% over the previous high. Although we expect the market to normalize in coming months, we can still anticipate another strong year in 2022. Data from Cushman & Wakefield explains one reason why real estate has long been considered a hedge against inflation. For each 1% increase in inflation, total returns on property average 1.1%. “In other words,” explains David Bitner, Global Head of Capital Markets Insights, “commercial real estate not only protects against higher inflation but provides outsize returns specifically in these environments.” With all investment comes risk, and commercial property is no exception despite its traditional returns. As with most investments, one way to mitigate potential jeopardy is to closely monitor current business trends and economic conditions and properly manage that asset in response. For many commercial property owners, that task can be overwhelming. Just day-to-day property management tasks can quickly become a full-time job, leaving little time for the added responsibility of managing that same property as an investment asset. But these property owners have a secret weapon at their disposal: professional property managers. What do Property Managers Do? Most people’s perceptions of property managers come from personal experience as tenants, either in a residential or commercial setting. As a renter, your property manager is the person you pay once a month and on whom you depend when you need repairs. While accounts receivable and plumbing maintenance are important responsibilities, commercial property managers present many more benefits to busy owners and investors, especially in economic times like these. Manage Multiple Properties The recent property boom has allowed many investors to broadly expand their commercial real estate holdings. While economies of scale allow owners to take on more properties without a proportionate increase in some expenses, other factors can manipulate this equation. When an investor holds multiple properties, they are often widely dispersed geographically, making it difficult to respond to on-site issues in a timely manner. No matter the nature of these issues, a professional property management company has resources dedicated to efficiently deploy staff to manage those affairs. CAM Calculations Economic conditions like supply chain issues, labor shortages, and high inflation have raised expenses for property owners, and despite attempts by the Federal Reserve to quell the cost of living, inflation is still surging. In the Southern U.S., the 12-month consumer price index advanced 9.2% in May, the highest level our region has seen yet. For property owners, these rising costs can produce challenges to area maintenance (CAM) budgets. Typically, CAM fees are calculated at the start of the fiscal year and reconciled at the end of the year. If CAM fees are initially set too low, unforeseen expenses and rising costs can leave owners in the red for months until reconciliation, and tenants who are hit with high increases may be driven to vacate. A professional property manager has the knowledge and expertise to better anticipate expenses for the year and set appropriate CAM fees. Lease Negotiations and Terms During the height of the pandemic, commercial tenants were reluctant to sign long term leases, but that trend appears to be changing. Nationwide in Q4 2021, nearly one-third of all commercial leases were for a term of 10 years or longer. That same quarter, the average commercial lease was 57.8 months, compared to a low of 51.2 months in Q3 2020. Longer leases can be beneficial for property owners because of a reduced risk of vacancy, but can also be risky given the volatility of the current economy. A property management company has expertise in designing and negotiating leases to mitigate risk for owners, for example by preparing a document that includes automatic increases triggered by the cost of living index or other economic variables. Ensuring Full Units Our region is experiencing historically low vacancy rates in commercial property. Our Q1 2022 MarketBeats reports show a vacancy rate of 4.4% in the general office market and a stunningly low 1.7% in industrial properties. As the market normalizes, vacancies will eventually increase. Some level of tenant turnover is natural and expected, but lengthy vacancies can quickly become a financial drain on commercial investors, especially those not equipped to market their assets to new tenants. Property managers can keep your portfolio of properties full by marketing your assets, vetting applicants, and onboarding new lessors efficiently. Maintenance and Beyond The more properties you own, the more difficult it becomes to handle the maintenance and repair needs of those assets. The current labor shortage has made it difficult to find contractors, maintenance workers, and other vendors, and new or part-time property owners may not have the resources needed to find and enlist these tradespersons on short notice. A property management agency will already have established relationships with these vendors and some, like Cushman & Wakefield | Commercial Property Southwest Florida, employ their own facilities services team to efficiently handle issues. As the commercial real estate market normalizes and vacancies increase, it will become more difficult for property investors to keep their units full. To mitigate this trend, it is imperative for owners to have a well-maintained, financially stable asset. Professional property managers are better positioned than owners to ensure an asset is in good condition, both physically and fiscally. If you’re new to property ownership– or if you