Five Real Estate Trends to Watch in 2023

By Gary Tasman The year 2022 is one we won’t soon forget here in Southwest Florida. We started the year with record-breaking inflation, as supply chain issues, labor shortages, and the costs of materials all drove prices higher. At the time, we predicted a busy year for both land and development deals, thanks to record-low supply. We also predicted that the then-anticipated interest rate hikes by the Federal Reserve Bank would flatten prices and slow sales of both commercial and residential properties.  What we didn’t predict was Hurricane Ian– or how the worst disaster in Southwest Florida history would impact our economy and our property market. As we look ahead to our commercial property predictions for 2023, it would be impossible to ignore Ian’s impact. Unarguably, Hurricane Ian changed the course of development in Southwest Florida. With more than $5 billion in estimated damages in Lee County alone, our region is focused not just on building, but on rebuilding. In many ways, the hurricane will accelerate growth in our region, thanks to infrastructure funding that will bolster our emergency preparedness as a region. Where will we see growth in 2023? Continue reading for our five commercial property trends to watch. Affordable Housing on the Fast Track Affordable housing has been a concern across the state and particularly in Southwest Florida for years. The Florida Housing Coalition announced this year that there was a statewide deficit of close to half a million homes that are affordable to lower- and middle-income families. The agency estimates that in Lee County, one-quarter of homeowners are cost-burdened, meaning they spend more than 30% of their annual income on housing expenses. The numbers are similar in Collier (25.7%) and Charlotte (23.4%) counties. Renters carry an even larger burden. In Lee, 48.3% of renter households are cost-burdened, with Collier County renters at 50.2% and Charlotte renters at 52.3%. Although we anticipate that rent growth and home prices will level off, we don’t foresee prices falling down to pre-pandemic levels. The demand erosion caused by the national economic slowdown will largely be offset by expansion in our area due to the hurricane. With more than 5,000 homes destroyed in Lee County alone (and countless others rendered with major damage), demand will remain high for both long-term and temporary housing. Initiatives from Fannie Mae and Freddie Mac will work to alleviate some of our affordable housing woes, and new multifamily developments coming online will add much-needed supply to our housing stock. However, our community’s leaders know that to truly solve our region’s housing crisis, we need to increase supply, and create equilibrium between supply and demand. Unfortunately, increasing our supply of housing and rental stock will take time, and 2023 is too soon to see relief. Construction costs are high due to shortages of both materials and labor, and the cost to borrow money for development also presents a challenge. However, Hurricane Ian has made our housing conundrum more urgent than ever, and we expect that local governments will be motivated to take action. The Reimagining of the Office Part of the reason for our region’s housing woes is the population explosion we experienced during the pandemic in 2020 and 2021.  Office workers with newly-remote positions were given the opportunity to work from anywhere in the world. Many chose to live in paradise and relocated to Southwest Florida. As of 2022, 26% of American employees work entirely remotely, and nearly two-thirds of U.S. workers are at least partly remote. This creates a challenge for office-based employers, who will need to re-think their work model or face the possibility of losing employees to companies with more flexible policies. Another, more local, factor will also force office occupiers to reconsider their model. Prior to the hurricane, our region’s supply of commercial real estate was already limited. The Southwest Florida office property vacancy rate was a shockingly low 4.8% entering the fourth quarter of 2022, according to our MarketBeats report for Q3 2022. In line with the low supply, office asking rent had climbed to $20.79 per square foot, an increase of nearly 12% from just 24 months earlier. With wages also growing by close to 8% over that same period, employers will need to find ways to cut costs. While it’s unlikely that most employers will switch to a fully-remote workforce, the need for cost containment will encourage many businesses to switch to a hybrid model to reduce operating costs and satisfy employee desires for more freedom. And while hybrid work may reduce some demand for office space in our area, we predict that some of our more antiquated commercial stock will be redeveloped into industrial space or even multi-family properties to satisfy the region’s needs. Pent-Up Demand for Mega-Resorts Hurricane Ian impacted more than just homes and offices– repairs are underway at numerous hotels and resorts across Southwest Florida. Three of the largest resorts in Collier County, the Ritz-Carlton Naples, Vanderbilt Beach Resort and LaPlaya Beach Resort, sustained major damage. Others in Lee County, especially those on vacation mecca Fort Myers Beach, are either closed for repairs or permanently shut down. As of early November, roughly 40% of Lee County’s hotel rooms still remained closed. With little room for tourists this season, our region will see a substantial buildup of demand for lodging options. Yes, tourism numbers are likely down for at least the next year, but a number of new mega-resorts will alleviate the strain as vacationers and snowbirds begin to arrive in late 2023.  Margaritaville in Fort Myers Beach and Sunseeker Resort in Punta Gorda will be joined by a Four Seasons resort in Naples, all in planning well before Hurricane Ian. Once these resorts come online, we expect that they will produce outstanding occupancy and positive room rates, thanks to the pent-up demand for quality vacation spots. Once these resorts prove the concept, like-minded investors will want to join the party. With tourism still the region’s major economic driver, new resorts will not only bring in

By Gary Tasman There are a lot of reasons to love Southwest Florida: beautiful beaches, abundant activities, and a snow-free environment typically top residents’ lists. But ask the average Southwest Floridian what they dislike most about our region, and you’ll often hear the same answer over and over again: traffic. That response likely wouldn’t survive employees at navigation app developer TomTom. The TomTom Traffic Index, which analyzes urban congestion worldwide, ranks the Fort Myers-Cape Coral area as the 13th most congested metro area in the entire United States, just behind Philadelphia, Atlanta, and Tampa. TomTom estimates that Lee County drivers lose 73 hours sitting in traffic in a year– more than three days’ worth of time. Fortunately, work-from-home initiatives, new transportation corridors, and employers who have relocated to more commuter-friendly locations have relieved some congestion in our region. For those Southwest Floridians still frustrated by traffic, we have good news: More relief is coming from the Florida Department of Transportation (FDOT). Transportation Infrastructure and Population Growth FDOT has been paying close attention to population growth in our region as it prepares for the transportation needs of the future. Between Lee, Collier, and Charlotte Counties, 100 new residents are moving to our region daily. Lee County is one of the 10 fastest-growing counties in the United States, growing 19% in the last decade. All three counties are expected to continue growing at a rapid pace for the foreseeable future. Explosive population growth like ours nurtures demand for new services, new industries, and new jobs. The pressure generated by each of these factors will urge significant investments in transportation infrastructure. For example, as Northwest Cape Coral’s population expands, the widening of Burnt Store Road will allow residents better access to Interstate 75. Other transportation projects in the works promise to relieve traffic at I-75 and Colonial Boulevard in Fort Myers and improve access to the interstate for commuters in Golden Gate. However, I-75 itself is also a focus. FDOT Southwest Connect Program FDOT’s Southwest Connect program takes interstate connectivity a step further than the aforementioned initiatives. According to FDOT, each project within the program is expected to move people and goods safely and efficiently while balancing regional transportation needs with community concerns. The four pillars of FDOT’s program are: interstate improvements to accommodate long-term needs for capacity and mobility; new interchanges to I-75 and accessibility improvements to existing interchanges; enhanced liveability and economic growth through complete streets design principles; and multi-modal accommodations to enhance access, efficiency and safety in transportation. As FDOT works to identify the future transportation needs of our community, it will engage the public and local agencies, including county and city governments. Possible transportation alternatives may include strategies like managed lanes like those dedicated to carpool/high occupancy vehicles, truck-only lanes, or express lanes. Improving access and flow on the interstate will surely relieve some of our region’s traffic woes. However, numerous other initiatives and studies, particularly in Lee County, are focused on reducing the number of vehicles on our roads altogether. Public Transit Initiatives in Lee County A $3.89 million improvement project to LeeTran’s Rosa Parks Transportation Center in midtown Fort Myers is adding four more bus bays and expanding access for bicyclists, pedestrians, and persons with limited mobility. The improvements will be the first of any significance for the facility since it opened 22 years ago, and a welcome sight for anyone who depends on public transit in Lee County. The Southwest Florida Vanpool Program also reduces the number of vehicles on our roads by providing a low-cost, convenient commute. The fleet, provided by Enterprise, includes large passenger vans, minivans and crossover vehicles. The program allows coworkers who live near one another to form vanpools of up to 15 commuters, who share expenses and driving responsibilities. However, the most futuristic of FDOT’s initiatives is the autonomous shuttle program it hopes to implement in the next five years. LeeTran has been identified as a partner transit agency, and a potential route for the driverless shuttle is being identified in downtown Fort Myers. While the initial stage of this program may not make a significant impact on our region’s overall traffic woes, the program itself is evidence of FDOT’s willingness to look at outside-the-box solutions to our area’s traffic woes. Transportation Infrastructure and Commercial Real Estate Naturally, when we talk about improvements to transportation in our region, most of us wonder how they will impact our own daily commutes. However, the importance of transportation infrastructure improvements expands far beyond our own personal convenience. Investment in transportation infrastructure is vital to the health of the commercial real estate market in any community. Residents need access to goods and services, employers need access to personnel, and manufacturers need access to distributors and warehouses. Commercial growth in Southwest Florida has closely followed infrastructure investment, and this trend will continue as our population boom continues. The ability to transport goods, services, and employees are vital to the success of our region’s businesses. With transportation advancements, smart businesses will be able to reduce costs, boost their productivity, and create jobs for the 100 newcomers a day that arrive in our region. How will transportation changes in Southwest Florida impact your business? Are you in the right location to take advantage of our region’s growth? If you’re seeking the answers to these questions, contact the Commercial Property Experts at Cushman & Wakefield | Commercial Property Southwest Florida. Our team of commercial real estate professionals has the knowledge and experience to help guide you and your business. Call us at 239-489-3600 or contact us.

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

By Gary Tasman Whenever a disaster like Hurricane Ian occurs, fraudsters seem to come out of the woodwork, offering to repair roofs, remove trees, or expedite government assistance. And while most of us are on high alert to these types of scams, there are many types of fraud that occur every day without our awareness. One of the most common is real estate fraud, which can impact both residential and commercial property owners, often with devastating consequences. In 2021, real estate and rental cybercrime losses totaled $350 million, an increase of more than 64% from the previous year. More than 11,500 victims were targeted by these scams, to the tune of more than $30,000 in losses per victim. There are multiple types of real estate fraud that bad actors can commit to dupe buyers and sellers. These include wire fraud, land fraud, mortgage fraud and rental fraud. While all of these are significant, we’d like to focus specifically today on wire fraud and land fraud, which have become two of the most predominant forms of deception in the real estate industry. What is Real Estate Wire Fraud? Put simply, wire fraud is a scam that involves the use of telecommunications– and in real estate, this typically means email, although it can also occur via fax, phone, or even text messaging.  In real estate, the most common form of wire fraud will trick a buyer into transferring a large sum of money– such as a good faith deposit, downpayment, or closing costs– to a fraudulent bank account. One survey of title agents indicated that wire fraud attempts occurred in roughly 33% of all real estate transactions in 2020. How does this happen? If you’ve ever purchased a property, you understand how complex the transactions can be. They can involve multiple realtors, mortgage companies, title agents, and even attorneys. As the closing date draws near, there is often a flurry of emails and calls while the final details are worked out. Scammers take advantage of this frenetic situation and send a legitimate-looking email to the buyer, stating that the wire transfer instructions have changed and offering new instructions. The buyer, eager to expedite the closing, wires the money as directed, and doesn’t realize until the next day that the legitimate account never received the funds. Typically these scams first start through a phishing email. Bad actors will send malicious emails to realtors, brokers, attorneys, title agents and similar parties, in the hopes that someone will click on a phishing link and download spyware to their computer. “Once that email is clicked on, you might as well have invited the fraudster to sit behind you and just watch everything that you do,” says David Lanaux, President/Owner of Title Professionals of Florida. “They look at what’s going on, they see the communications getting passed back and forth between themselves and the client, and when the timing is right, because they know when the closing’s going to happy, that’s when they interject and send that client new wire instructions, new information that changes the whole course of the transaction, and before you know it, that money is gone.” Lanaux has become very familiar with real estate fraud.  On the most recent episode of our “What’s Developing in Southwest Florida?” podcast, Lanaux revealed that his company has caught nine attempts at fraud in just the last two months, although not all were wire fraud attempts. According to Lanaux, the Southwest Florida real estate market is particularly susceptible to wire fraud because close to 50% of real estate transactions in our area are cash sales, making scams like these a lucrative proposition. What is Real Estate Land Fraud? Land fraud can also impact both residential and commercial transactions. In this scam, a huckster represents themselves as the owner of an undeveloped property and contacts a real estate agent or broker to sell it, often at a reduced price to encourage a rapid sale. This scam is also sometimes called title fraud. Land and title fraud are most common when the rightful property owner lives out of the country or does not regularly check on the property. An example of this happened in Cape Coral in late 2020, when an out-of-state couple purchased a vacant lot for less than $8,000, below its assessed value. The owner, who lived in France, discovered that her property had been sold out from under her when she didn’t receive her annual property tax bill. She was also bilked out of a Port Charlotte property. Preventing Real Estate Fraud Real estate industry professionals, as well as buyers, sellers, and property owners can all take steps to reduce the incidence of real estate fraud. Cybersecurity needs to be a top priority, as just one malicious link can open the door for scammers. Hackers can and will target anyone involved with real estate transactions, including lenders, attorneys, real estate brokers and title agencies. The Federal Trade Commission offers a number of resources to recognize and avoid phishing scams. Professionals should also alert their clients to be wary of any email that contains wire transfer instructions or other requests for financial information. Real estate agents and brokers should be familiar with the red flags that are common in land fraud attempts. These include sellers who appear out of the blue and are eager to unload a property quickly for less than market value. Other red flags include sellers who are located out of the country or who only want to communicate over email. Lanaux recommends asking for seller identification up front and working with your title company to verify the seller’s credentials. Buyers must be skeptical of any email or text message they receive about wiring a down payment or deposit. If they receive an email with new wire transfer instructions, they should immediately call the purported sender and confirm before clicking any links. Additionally, buyers can provide themselves with peace of mind by doing their own independent research on a property before making a