Florida is Arguably the Hottest CRE Market

Florida was arguably the hottest commercial real estate market in 2021 Q4, boasting nine of the top 15 cities in the US, according to NAR’s recently released 2021 Q4 Commercial Real Estate Metro Market Reports.

Its findings are based on NAR’s Commercial Real Estate Market Conditions Index that captures market trends in the multifamily, office, industrial, retail, and hotel property markets in 390 metropolitan areas or portions of these areas. 

The index is based on the economic and demographic conditions of a metro area and commercial market indicators on net absorption, vacancy rates, rent, deliveries, ongoing construction, inventory, total sales volume, transaction price, and cap rates based on CoStar market data. 

The index is calculated as the ratio of the number of variables where a metro area’s condition is stronger compared to nationally to the total number of indicators used in calculating the index.

Based on the index, Florida had nine of the top 15 metro areas among metro areas with a population of at least 250,000. Following Florida is the state of Washington with three metro areas in the hottest commercial markets list. North Carolina, South Carolina, and Tennessee are the other states that scored well.

Meet Me in Miami

For example, the Miami-Miami Beach-Kendall metro area’s office vacancy rate in 2021 Q4 was 10.5% compared to 12.2% nationally. It experienced a net absorption of office space in the past 12 months (643,000 sq. ft.) while nationally, the office market gave back 39 million square feet of office space. 

The asking rent for multifamily apartments is up 17.4% on a year-over-year basis, compared to 11.3% nationally. 

Regarding its industrial property market, industrial rents are up 15.3% year-over-year compared to 8% nationally. The vacancy rate in the brick-and-mortar retail stores is at a low 3.4% compared to 4.6% nationally. It is also experiencing job creation in the hotel/leisure industry at a faster pace than nationally.

High-fliers according to NAR’s index include: Charleston, S.C.; Durham, N.C.; and Florida’s Fort Myers, Jacksonville, Miami, Naples, North Point-Bradenton-Sarasota, Orlando, Palm Beach, Port St. Lucie, and Tampa.

Canvassing the Country

Surely these markets will be contenders for 2022, along with other markets identified by experts contacted by GlobeSt.com. 

For instance, Georga Rowe, managing director of Acquisitions in MDH Partners’ Dallas office, tells GlobeSt.com that Phoenix will be the hottest market for commercial real estate in 2022. She credits the city’s business-friendly climate and high standard of living, attracting more and more California businesses and residents.

Mark Seale, principal, director of Brokerage Services, Avison Young, gives GlobeSt.com a few more reasons why Phoenix will flourish. The MSA continues to benefit from its proximity to California, it’s quality of life, climate, relatively low cost of living and business friendly environment. 

“Companies are attracted to the market due to the educated workforce (robust Maricopa County Colleges and Arizona State University) and more affordable residential and commercial real estate when compared to other major cities,” Seale said. 

Bioscience and healthcare are also industries that are growing faster in Phoenix than almost anywhere else in the nation, he continued. The addition of Taiwan Semiconductor Manufacturing Company and the continued expansion of Intel have also made the area a hotbed for semiconductor uses and suppliers over the past 12 months which will continue for the foreseeable future. “The availability of developable land and a development-friendly government that enables a smooth and timely construction process, are also proving to be a major positive.”

Gary Bechtel, CEO at Red Oak Capital, tells GlobeSt.com that he has seen tremendous growth in secondary markets such as Austin, Nashville, Charlotte/Raleigh, and Salt Lake City, which are all experiencing large population increases and to a lesser degree tertiary markets such as Gainesville, Lincoln, and Huntsville.

Erin Morales, Principal and Managing Director, Avison Young, tells GlobeSt that Austin continues to see unparalleled growth in jobs, population and business—all of which surged through the pandemic.

“Companies and people love to call Austin home because it checks so many boxes,” she said. “It is a coveted place to live and work for both families and young professionals, provides a number of higher education options, and has a diverse mix of amenities and activities for residents to enjoy. It’s also one of the country’s top tourist destinations. 

“Real estate investors recognize the velocity of these fundamentals is not slowing down. Some of Austin’s most recent company expansions include Tesla, which will soon begin production at its new Gigafactory in southeast Austin, and Samsung who just announced a $17 billion investment in Taylor—just east of Austin—for a new facility to be used for the production of advanced semiconductors. Finally, Micron Technology has also shown interest in the Austin area, scouting potential locations for its $40 billion plant in Central Texas.”

Allan Swaringen, president & CEO of JLL Income Property Trust, tells GlobeSt.com that he continues to have high conviction that industrial properties in markets with irreplaceable transportation infrastructure will deliver attractive, long-term risk adjusted returns.

“While the industrial and warehouse sector has been one of the top performers for the last few years, we believe this sector continues to be attractive though our focus is more geared toward transportation hubs rather than “last mile” locations. The Chicago, Atlanta, Dallas/Fort Worth, Seattle, Louisville, and Phoenix markets are good examples of this.”

Kip Sowden, CEO and Chairman of RREAF Holdings, tells GlobeSt that the Sunbelt must be on everyone’s list.

“The I-35 artery between Dallas and San Antonio, which encompasses nearly half of the rapidly growing Texas population, is where housing demand cannot be satiated. We are also very bullish on the Middle Tennessee area and several targeted markets in the mountain west region experiencing continued expansion,” Sowden said.

Chris Okada, CEO, Okada & Co., tells GlobeSt.com that despite ongoing work-from-home protocols, NYC office space is making a comeback. 

“We are seeing significant appetite, particularly in Midtown South below 34th Street,” he said. “Over the past 12 months, companies including Facebook, Google, and Amazon acquired space in the area, sinking serious investments into the future of office.”