By Gary Tasman
2021 was an explosive year for commercial development in Southwest Florida. Thanks to what we’re calling the “COVID Economy,” our region experienced a population boom, which in turn created more demand for commercial and residential property than anyone anticipated. Southwest Florida saw an explosion of housing starts and rental communities, as well as rent growth last year.
What do we mean by the COVID Economy? Economically speaking, the pandemic created opportunity for growth in Southwest Florida. Tourists with pent-up travel demand were drawn to the Sunshine State because of limited restrictions and business closures. At the same time, employees nationwide were coming to the realization that they could potentially work from anywhere, and Southwest Florida’s quality of life has certainly attracted remote workers. These factors, in combination with low interest rates and other federal economic initiatives, sparked an exponential population surge—on top of our region’s already above-average growth.
Growth, Supply, and Demand
As we’ve discussed in previous articles, commercial development closely follows population growth. New residents need services like health care, restaurants, grocery stores, and entertainment venues. As these new facilities are built, jobs are created, and even more people move to the region to fill those positions.
As high demand meets a dwindling supply, where do we go from here? Our region’s current inventory of office, industrial, retail, and even multi-family homes are nearly depleted, creating demand for even more development. However, the growth of our region is environmentally constrained by the Gulf of Mexico to the west and environmentally-sensitive lands to the east and south.
Our predictions for the commercial property market in 2022:
- As demand for land increases disproportionately to supply, we expect to see a near record-breaking year for land sales.
- Because much of our investment property is absorbed, we will see a decrease in the number of investment sales. However, the average value of 2022 investment sales will be considerably higher.
- Development deals will be both more scarce and more expensive, meaning developers will likely team up to get projects off the ground efficiently.
- Speculative building will increase. Although our region’s commercial development has been rapid, it has lagged behind the population explosion. Developers have a great opportunity to create value through spec building, as the projected returns on the risk outweigh the low returns on cap rate deals.
- The economy will slow down by the end of 2022. The recent increase in housing values isn’t sustainable long-term, and combined with anticipated interest rate increases, prices will flatten and sales will slow.
Want more of Gary Tasman’s predictions for 2022 and his advice for your commercial property strategy? Listen to Episode 1 of our new podcast, “What’s Developing in Southwest Florida?”
If you’re a commercial property owner, buyer, user, or investor, the market still provides opportunity for you—but it is moving quickly. Whether it’s time for you to sell, or you’re just considering your options in our current commercial real estate market, the commercial property experts at Cushman & Wakefield | Commercial Property Southwest Florida have the knowledge, data, and resources to determine the best strategy for you. Contact us by calling 239-489-36000 or contact-us.