How Would a Recession Impact Southwest Florida?

By Gary Tasman

Rarely a week passes without a financial publication speculating about the potential for a recession. While some experts believe that the red-hot job market is far too strong to precipitate a downturn in this calendar year, others point to traditional factors such as rising interest rates, high inflation and an inverted yield curve as signs that a recession could be just around the corner. In such uncertain economic times, it’s certainly difficult to know how to manage our investments, particularly when it comes to substantial ventures like commercial property.

On the June episode of the “What’s Developing in Southwest Florida?” podcast, I had the pleasure of talking with JP Bacariza, Vice President and Tampa Market Leader at Ryan Companies. Ryan Companies is a national commercial developer with investments across the country. Despite the troubling economic indicators above, Bacariza says he believes that if a recession were to take hold in the coming year, our region could face minimal impacts.

Regional Impacts During a Recession

During times like these, we need to remind ourselves that a recession can bring varying effects to different sectors of the economy, as well as to different geographical regions. Our area was one of the hardest-hit in the country during the Great Recession, so it’s understandable for Southwest Floridians to be anxious about the prospect of another economic downturn.

While we’re once again seeing a real estate boom in our area, the circumstances today are very different from those we experienced prior to the Great Recession. In the early 2000s, speculative investment dominated our local real estate and construction markets, producing too much inventory and setting the stage for failure. An oversupply of residential properties, coupled with the collapse of the housing market, caused property values to plummet and plunged tens of thousands of area homeowners into foreclosure. Unemployment soared when Southwest Florida’s tourism and construction industries stalled, creating a perfect storm of misfortune in our area.

This time, however, demand—not speculation—is sparking our development boom. “There is a huge amount of housing need in this area,” said Bacariza. “I’m very bullish on the region because of that.”

How exactly does our development boom translate into a less drastic economic downturn in Southwest Florida? The answer can be found by examining two key variables: net migration and infrastructure investment.

The Impact of Net Migration

In 2022, Florida was the fastest-growing state in the nation, with an increase of nearly 319,000 new residents in just one year. Here in Southwest Florida, our quality of life, abundant sunshine, convenient location to major metropolitan areas, ample recreational opportunities, relative affordability, and tax advantages have made our state, and particularly our region, a major draw for both residents and businesses.

When more people move to Florida, the result is more opportunity, and not only in real estate and construction. As we’ve discussed in previous articles, growth creates a sustainable cycle of economic activity and opportunity. An influx of new residents creates demand for grocery stores, entertainment, schools, medical facilities, utilities, and other services. Easing this increase in demand requires staffing, which creates additional job opportunities and lures even more residents to the area.

In an economic downturn, that cycle makes our region even more appealing. “The recession hits and you can’t find a job,” says Bacariza. “You look around the globe and you say, ‘where are people hiring?’ If I want a job, I might have to come down to Fort Myers. There’s a lot of jobs there because there’s a lot of demand.”

The Role of Infrastructure Investment

For those of us who endured Hurricane Ian, it’s difficult to say that one of the deadliest hurricanes in our history has a silver lining. However, the 2022 storm could be one of the keys to our region’s survival during a potential recession, thanks to federal infrastructure dollars.

In March, the U.S. Department of Housing and Urban Development announced $1.1 billion in assistance for Lee County in the form of a Community Development Block Grant for disaster recovery. In addition to infrastructure repair, these funds can be used for activities including housing redevelopment, economic revitalization, and long-term planning. Charlotte and Collier counties will see a smaller cut of these dollars, as part of an additional $728 million disaster funding grant that will be split between fourteen counties.

“When the checks come through, that’s going to be stimulating the local economy, purely the local economy, in what might be a recession,” said Bacariza. “Having the rebuilding of Ian, that might be something that draws people in.”

While infrastructure investment creates short-term employment opportunities, it also produces long-term growth. When businesses are able to operate more efficiently and become more productive, they can create even more jobs and stimulate further economic growth in the region, even during a time when the economy is stalled elsewhere.

One Potential Pitfall: Insurance Rates

While hurricane recovery funds will be essential to keeping Southwest Florida’s economic engine running, rising insurance rates could lead to a potential slowdown in development.

Across the nation, the price of commercial property insurance is reaching a crisis point, with premiums increasing an average of 9.4% between 2021 and 2022. That number, however, pales in comparison to the skyrocketing insurance rates in the Sunshine State. Thanks in large part to Hurricanes Ian and Nicole, commercial insurance rates in Florida are expected to increase by as much as 50%.

The rising cost of insurance can be an impediment to developers and investors, Bacariza told us. “If you want to insure a multifamily project, you’re not looking at $600 a unit now, you’re talking about $1600 a unit,” he said. “Someone that is still using last year’s numbers goes to get their insurance in place and finds that all of a sudden, the deal doesn’t pencil any more.”

In addition to being burdensome for potential commercial investors, skyrocketing insurance rates can increase the cost of starting new businesses and place financial strain on existing enterprises. For industries heavily reliant on property insurance, such as real estate and construction, higher insurance costs can deter their ability to secure financing or their ability to undertake new projects.

In the long run, however, Hurricane Ian might actually be the key to an eventual reduction in insurance premiums. The hardening of our infrastructure and our real estate inventory after the storm will produce a more durable, resilient Southwest Florida. As we noted in a November article, “As the quality of our region’s building stock improves over time, the risk of insuring properties becomes lower, and the average cost of a property insurance policy should decrease.”

What’s Next For Southwest Florida?

Thanks to net migration, demand in Southwest Florida should remain strong, and post-hurricane infrastructure investment may be able to help us weather a potential economic storm on the horizon. While the future of our economy remains uncertain, we can confidently make one statement when it comes to development in our region: The professionals at Cushman & Wakefield | Commercial Property Southwest Florida (CPSWFL) will continue to be an excellent resource as you consider your commercial real estate options.

Our team of experts has the in-depth market knowledge and experience to help you navigate the uncertainty. To speak with our team about how CPSWFL can assist you with your needs, call 239-489-3600 or contact us using the form .

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