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 insurance policy should decrease.
What’s Next?
Much like hurricane recovery itself, these changes don’t happen overnight. It will likely take years for many property owners to fully reap the benefits of our post-Ian commercial real estate landscape. In the meantime, CPSWFL’s Commercial Property Experts are ready to assist you with your post-hurricane needs. If you need temporary space to relocate your business, or you have space available to offer, our team can connect you with potential lessors or lessees. If you are considering listing your property, our experts are prepared to provide you with a free property valuation to help you make a confident decision. And if you are considering investing in property in Southwest Florida, take advantage of our best-in-class knowledge of the local commercial real estate market.
Disaster recovery can be an emotional and stressful time. When it comes to your commercial property needs, our team of experts can help you navigate the situation. To learn more about how Cushman & Wakefield | Commercial Property Southwest Florida can assist you with your post-hurricane property needs, call 239-489-3600 or contact-us.