What’s Next, Ep. 12: 2021 Commercial Property Outlook

By Shawn Stoneburner When the economy takes a tumble, investors immediately start hunting for recession-resistant assets. For the better part of the last 30 years, commercial real estate investors have turned to medical properties, which has been one of the strongest investment performers in our economy, regardless of economic conditions. Even during the global financial crisis of 2007-2008, growth in the medical office market continued while other sectors stumbled. A drive around Southwest Florida provides plenty of evidence of the resiliency of the medical real estate market. In the last five years, our region has seen close to a dozen urgent care centers open, including several multi-location chains. Lee Health invested in a mammoth expansion of Gulf Coast Medical Center, Family Health Centers of Southwest Florida added a three-story, 65,000 square foot medical center in Lehigh Acres, and Healthcare Network of SWFL opened its own three-story facility in Golden Gate.  Ready to make a move?  Get started by contacting us. The real question is if the medical real estate market is immune to COVID-19. As we all know, the COVID-19 recession has been unlike any other economic downturn we’ve experienced in our lifetimes. Nationwide, pandemic-related shutdowns forced doctors’ offices to close and elective procedures to halt. For those who needed to see a doctor, many delayed appointments or switched to telehealth services rather than risking exposure to the novel coronavirus. As a result, spending in the healthcare sector declined sharply in the second quarter of 2020, and medical office occupancy plunged. Commercial property investors have been left wondering if the medical real estate sector was as bulletproof as we’d been led to believe. While worry is certainly understandable in uncertain times like these, the pandemic’s impact on the medical office market should be a short-term concern. Over the long run, Cushman & Wakefield’s commercial brokerage professionals believe that the medical office market is poised to make a strong comeback. There are two primary reasons why. The first is our aging population, and the second is the economic condition of the healthcare sector as a whole. When the baby boomer generation first appeared, our nation’s population looked very different. In 1950, there were only about 12.4 million senior citizens in our country. Today, the U.S Census Bureau estimates that there are nearly 51 million Americans age 65 or older—a number that’s expected to increase to 80 million by 2040. And as we collectively age, our medical needs increase. While the 65-and-older crowd makes up just 15.6% of the U.S. population, this age group accounts for 36% of healthcare spending. With our nation aging, our need for medical care will only increase further, and medical office properties will be in high demand. Here in Southwest Florida, that demand will be even more relevant. Seniors currently make up an estimated 32% of the total population in Charlotte, Collier, and Lee Counties, keeping the need for health care on the rise. Health care also continues to be a strong sector financially. For the last decade, health care spending has increased $136 billion per year. Our aging population, combined with the rising cost of health care services, has kept spending on an upward trajectory. In fact, the Center for Medicare and Medicaid Services projects that health care spending will nearly double over the next decade—to an average growth of $268 billion per year. Even when COVID-19 brought the economy to a near standstill, the health care sector was one of the quickest to rebound. The pandemic caused a 9.6% decline in healthcare employment—a staggering number, but small compared to the 14.5% decline in U.S. jobs overall. More important, as of October, nearly two-thirds of those health care jobs had been recovered, compared to 54% of all jobs in the country. Health care spending followed a similar pattern. In the second quarter, health care spending dropped 54%. By the third quarter of 2020, 94% of that spending had bounced back. For decades, the medical sector in commercial real estate has been considered nearly recession-proof. While the COVID-19 pandemic has certainly challenged that belief, the experts at Cushman & Wakefield believe that our population trends, combined with the economic growth of the health care sector, will keep medical properties in high demand well into the future. We’re already seeing local indications of this trend. Six months into the pandemic, Encompass Health announced it was planning a 40-bed rehabilitation hospital in Cape Coral—one of six new medical offices planned for the Cape in the midst of a pandemic. Along the I-75 corridor, Frantz EyeCare is finalizing plans for a 60,000 square foot corporate headquarters, surgery center and medical office building that will break ground next month.  The remainder of Southwest Florida is likely soon to follow. While nobody will soon forget the human tragedy of COVID-19, the pandemic’s influence on the medical office real estate market will likely be a short-term stumble rather than a long-term calamity. To learn more about commercial real estate and development opportunities in the medical office market, contact the professionals at Cushman & Wakefield Commercial Property Southwest Florida. With extensive local market knowledge and best-in class data and analytics, Cushman & Wakefield is your go-to team for commercial property decision-making. Contact us for a complimentary, no-obligation property valuation by calling 239-829-5400 or contact-us.

By Gary Tasman and Shawn Stoneburner January 2020 seems like a lifetime ago, and as we think back to the start of the year, before the COVID pandemic changed the world, it’s difficult to recall where we were just 12 months in the past. Commercial property brokers and property investors entered 2020 with a great deal of enthusiasm. Vacancy rates were low, demand was high, and average rent rates were near historic levels in some asset classes. Developers were continuing to regard Southwest Florida with an optimistic eye. We all recall what happened after that. By Mid-March our economy and our optimism came to a screeching halt. Record numbers of Floridians filed for unemployment as businesses were forced to close or scale back, and Southwest Florida development activity came to a near- standstill. Nationwide, the U.S. economy collapsed at a 31.7% annual rate in the second quarter as schools, retailers, restaurants, theaters, hotels, and other businesses closed. Ready to make a move?  Get started by contacting us. It’s difficult to evaluate how our region – and our nation – has responded to the COVID recession. The last pandemic to make a significant impact on the economy was a full century ago, hardly a comparable era. What we do know is that as we enter 2021, we once again have reason for optimism. Ancient Greek philosopher Plato was the first to say that necessity is the mother of invention. Even 2400 years later, Plato’s words still ring true, as many recent innovations were necessitated by the pandemic. Necessity motivated biotechnology companies to develop innovative COVID-19 vaccines using groundbreaking messenger RNA technology. Necessity inspired the federal government to develop the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other emergency relief. Necessity also stimulated corporations large and small to find new ways to conduct business when traditional interaction was off the table. Necessity has also sparked a rebirth in several sectors of the commercial property market, most notably industrial real estate. The jump to online shopping during the pandemic has made property in the industrial/logistics asset class hotter than ever before. “In the second quarter of 2020, internet sales surged 44.5% year over year,” explains Kevin Thorpe, chief economist and Ken McCarthy, principal economist, both of Cushman & Wakefield. “In this environment, it is no surprise that demand for logistics space is nearly back to pre-crisis levels and occupancy is near all-time highs.” Our local Southwest Florida market reflects this same international trend. Industrial class real estate is filling nearly as quickly as it becomes available, with just 3.4% of industrial properties currently vacant. Rent rates, which were already at historic highs at the end of 2019, are still climbing, presenting an excellent opportunity for owners of properties and those with land ready to develop. The office property market gave investors and brokers plenty of anxiety in March and April, as traditional offices closed their doors and transitioned to telecommuting. Those nerves from six months ago are quickly subsiding, as Southwest Florida properties in this asset class are also recovering quickly. Cushman & Wakefield data indicates this recovery will continue, following a national trend as our economy shifts to more service and knowledge-driven industries. “As the economy adds jobs, a greater proportion will be in an office-using industry,” stated Thorpe and McCarthy. Of course, the full picture isn’t completely rosy. Much of our economy has yet to recover. Southwest Florida’s unemployment rate at the end of the third quarter of 2020 was still a staggering 10.2%, well above the national average and an alarming increase over last year’s third quarter local unemployment rate of 3.8%. Our region’s dependence on retail and hospitality jobs will likely keep employment recovery slow – but there is light at the end of the tunnel. Florida’s low taxes, combined with our region’s high-quality workforce, safety, healthcare, and quality of life continue to make Southwest Florida an appealing destination for residents, vacationers, and new businesses. Companies worldwide are expanding and relocating to Southwest Florida. Home sales are skyrocketing, which will spark other sectors of our economy including construction, finance, retail, and hospitality. We’re not completely out of the woods yet, but the gloom and doom of Q2 2020 is fading. Necessity generates invention, and the Southwest Florida property market is continuing to reinvent itself. For commercial property owners, there are blue skies ahead, and the professionals at Cushman & Wakefield | Commercial Property Southwest Florida have the knowledge and data to help you come out on top in 2021. Contact us for a complimentary property valuation and to learn how our best-in-class data and analytics can benefit you in the new year. If you have commercial real estate, the professionals at Cushman & Wakefield Commercial Property Southwest Florida are an excellent resource as you consider your for selling, buying, and leasing. Cushman & Wakefield’s brokers have extensive local market knowledge and best-in-class data and analytics to guide your decision-making. Contact us for a complimentary, no-obligation property valuation by calling 239-829-5400 or contact-us.