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.
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.