Stability in Commercial Real Estate Market

It is impossible to read the newspaper or business magazines, watch TV or listen to the radio without hearing how bad the U.S. economy is. Much of this doom and gloom centers around the so called “credit crunch” and its impact on real estate values.

Without question, the local, regional and national real estate markets, in general, have taken a beating. It is a mistake, however, to conclude that all aspects of the real estate market have suffered to the same degree.

The media often portrays the real estate market as one market, when in fact, it consists of any number of sub-markets that have their own characteristics. The residential housing market, for example, can and does behave much differently than the commercial real estate market. Further, within the residential market there are sub-categories that include single-family homes, condominium projects, apartments, subdivision development, etc. Each of these sub-markets is subject to its own unique characteristics regarding construction and development standards, financing and marketing.

Similarly, the commercial market can be divided into many product types as well, each with its own characteristics

While the commercial real estate market is not without its challenges, it has faired much better in Southwest Florida than the residential market. Current trends indicate that the commercial market has several favorable conditions that will likely continue to allow it to out perform the residential market.

First, recent reductions in interest rates make it more attractive for businesses and the investment community to own commercial real estate.

Second, it is our observation that banks in Southwest Florida are ready, willing and able to lend money to well-conceived commercial real estate projects. In fact, as banks’ ability to generate and sell residential real estate loans has diminished, many are looking to increase loans in the commercial area, particularly for owner-occupied commercial buildings. We find banks competing for this type of business.

Third, stock market volatility, which has reached new highs in the past 60 days, may drive equity investors to the commercial market searching for income producing real estate. Historically low interest rates coupled with a nervous stock market should prove as attractive ingredients to keep the price of developed property strong.

Our local economy is knitted together in a very complex and ever changing way. Prudent business people will acknowledge subtle differences in various market segments and will be rewarded for their efforts.

Craig D. Timmins, CCIM
David J. Stevens, CCIM
William V. Gonnering, CCIM, SIOR
Investment Properties Corporation of Naples

Back