Cushman & Wakefield | Commercial Property Southwest Florida brokers $6.94 million sale of North Fort Myers industrial park

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.

By Gary Tasman December 2021 marks an unpleasant milestone, as the first cases of COVID-19 were reported to the World Health Organization two years ago this month. While we certainly all feel like we have a clearer picture of the pandemic’s influence than we did when it first reached our country, much of the initial uncertainty we were feeling two years ago remains. This is particularly apparent for business owners, many of whom have struggled to manage the challenges that COVID has created. Keeping customers and employees safe and healthy has required some to realign offices and public areas. Others have transitioned to remote and work-from-home models, either temporarily or long-term. Some of those with less flexibility have installed protective measures like plexiglass barriers, air filtration systems, and even staggered work hours to limit capacity. Even for those businesses who have largely returned to “normal,” a looming question remains: Do we have the right amount of space to conduct our business? While many assume that businesses have scaled down during the pandemic, increased social distancing measures and rearrangement of public and private areas are forcing businesses to assess whether they have enough space in our new normal. Does Your Business Have Enough Space? Are you wondering if your business has outgrown its space? There are a number of signs—beyond the obvious– that may indicate that you are ready to upsize your commercial footprint. People Don’t Want to Meet at the Office/Worksite If you—or your managers—have started scheduling your client meetings off-site, there’s a good chance that you no longer have either the space or the privacy you need. If your conference rooms are always booked, or you’ve found yourself scheduling more lunch meetings or client get-togethers at coffee shops, this is a sign that you may need to grow. Similarly, have you noticed more employees finding reasons they need to work from home instead of reporting to the office? An increase in mid-day doctor’s appointments, car troubles, or “waiting for the cable company” could mean your employees are avoiding a cramped or unpleasant workspace. Your Workplace is Noisy By nature, some businesses are loud. For example, auto repair shops, preschools, dentist offices and restaurants produce a lot of noise. However, every business needs to have a quiet space for both productivity as well as comfort. If you’ve begun to outgrow your space, your noise levels will become less accommodating for both your team and your customers. When a business’ space needs increase, the buffer between the loud and quiet areas of your operation begins to fade. But noise levels aren’t just a factor for these types of business. Even a library can become too loud if it doesn’t have enough space for its staff and patrons. Your Team or Customers are Waiting Are you noticing long queues for the restrooms, break room, parking spaces or other facilities? Every business has its ebbs and flows—but if lines are occurring consistently, it may be time to begin looking for a new facility. While a remodel can alleviate some of a business’ growing pains, it’s difficult to build a new kitchen, restroom, or parking lot without a major capital investment. You’re Repurposing Your Space for Storage or Staff In a sense, many businesses are like goldfish, who will continue growing as long as their fishbowl will allow them to. When your workplace was initially designed, you probably had more storage and working area than you knew what to do with. Over the course of time, however, your space needs change. It’s not unusual for companies to convert small conference rooms and lesser-used hallways to become storage closets or offices—especially when external conditions force us to reassign our working space. While this can be a reasonable temporary accommodation, over the long term it’s a sign that you need to grow into a larger space. Your Building Doesn’t fit Your Brand Consider your company’s public image and the value proposition you offer. Are you customer service-oriented? If so, you need to have clean, spacious, and comfortable public areas. If your company’s persona is distinguished and professional, your facility should reflect that same image with generous, well-appointed offices. Does your business market itself as creative and fun? Then your workplace should reflect that attitude with collaborative and engaging spaces for your team to both work and unwind. Unfortunately, as businesses outgrow their space, they tend to dismiss the features that are part of their brand. If this sounds familiar, it’s time to look for a larger facility that will help you get back to your core brand. Your business cannot truly thrive when you’ve outgrown your space. Whether you own or lease your workplace, the Commercial Property Experts at Cushman & Wakefield | Commercial Property Southwest Florida are ready to help you assess your company’s needs—not just for today, but for the future. Our knowledge of the Southwest Florida commercial real estate market, combined with our actionable research and insights, will prepare your business for 2022 and beyond. Find out how our team can position you for what’s next by calling 239-489-3600 or by contact-us.

By Gary Tasman Although it seems the worst of the COVID-19 pandemic may finally be behind us, its effects continue to change the way we do business. It also continues to create some challenging situations for both commercial property owners and their tenants. Earlier this year, we discussed how force majeure lease clauses are being interpreted in the context of the pandemic. Force majeure is just one of many clauses that are essential for property owners to protect their investments. There are a number of other clauses that are—or at least should be—included in any commercial property lease, and many of them are even more relevant in our “new normal.” Important Commercial Lease Clauses Governing Law Laws can vary quite significantly from state to state, and that includes the laws that interpret leases. Novice commercial property owners may not be aware that a contract can designate which state or jurisdiction’s laws will apply to it. In other words, just because a contract was signed in Florida, it may not be governed by the laws of the State of Florida. As investors from across the country snap up property in our region, they may choose their home state’s statutes, or even U.S. Federal law, to govern potential contract disputes. Property owners need to understand their governing law options and how they vary to ensure they are making the most beneficial choice for their leases. Improvements and Alterations With demand for commercial property at an all-time high in 2021, it’s becoming more difficult for tenants to find a space that meets all of their needs. Many properties will need alterations to make them suitable for the tenants who wish to lease them. A clearly outlined improvements and alterations clause will denote what changes you are willing to make to the space before your tenants move in, who is responsible for the cost of those improvements or alterations, and the terms of payment if applicable. This clause should also outline a tenant’s rights to make changes to their space in the future, and the process for gaining approval to do so. Many businesses have seen changes in their need for space and how they use it because of the pandemic, and tenants will likely appreciate the opportunity to alter their space to fit their needs. However, as an owner in our current market, you have a distinct negotiation advantage. While your prospective tenants may want a number of alterations made to a space, they also understand that you likely have other potential renters who may not have as many needs. Subleasing Subleasing is another clause that is particularly vital in our current environment. As some workplaces downsize their teams or shift staff members to remote employment, they may find that they have more square feet than they need. To remain financially viable while keeping their current location, some tenants may want to sublease a portion of their space to another tenant. The sublease clause outlines not only whether or not this is allowed, but can outline any specific restrictions and create a process for seeking approval to sublet. Rent Escalation Consumer prices have increased more than 6% in the last year, the biggest jump in inflation in three decades. As a lessor, that means it now costs you more to maintain your property. If you don’t have a rent escalation clause in your lease, you are solely responsible for covering those unexpected expenses. Rent escalation clauses outline exactly how and when rent will increase for your tenants. This could be an annual increase of a fixed amount, for example a 2% escalation each year of the lease. However, this clause can also tie rent increases to inflationary indices like the consumer price index. This provides you with an insurance policy of sorts in volatile economic conditions. Merger With competition high for commercial space, many prospective renters are willing to negotiate to acquire the space they want. They may promise or agree to terms that would not typically be included in a boilerplate lease. No matter how formal these arrangements are, the merger clause will override any agreements that are not included in the actual lease document. This clause protects everyone by ensuring that all enforceable agreements between parties are included in one singular document. For novice property owners, it is particularly important to remember to include every agreement with a tenant inside the body of the lease. Tenant Self-Help As a landlord, you hold certain obligations for the maintenance and repair of your property, and  your tenants expect you to perform these duties. When property owners don’t take corrective actions, the tenant self-help clause outlines when renters can take matters into their own hands. Property owners would clearly prefer to have control over the costs of these repairs, but in an emergency, it may be more efficient for tenants to take action. In these cases, the tenant self-help clause will outline which expenses are reimbursable, when repayment should occur, and the situations in which self-help is allowed. Dispute Resolution In the event that you and your tenants have a disagreement about any of the terms of the lease, the dispute resolution clause outlines how to resolve those issues. Often, leases will outline a multi-step approach, beginning with mediation, then progressing to arbitration before resorting to litigation. This type of approach can potentially reduce the cost and time involved with a lawsuit. A related clause, Attorney’s Fees, assigns responsibility for litigation costs.  Typically, this clause will state that the winning party may recover attorney’s fees from the losing party. It can also denote responsibility for other costs like court fees, and even the expenses associated with arbitration or mediation. In many cases, the clauses above are considered “boilerplate” by both inexperienced property owners and renters. However, each of these clauses should be carefully considered and scrutinized when writing and reviewing commercial lease agreements. If commercial leasing or tenant issues are a concern for you, reach out to the professionals at Cushman & Wakefield