Industrial Market Update - Spring 2016

The area’s industrial real estate sector is still languishing overall, despite some bright spots and indications of recovery. While many distressed Sarasota-area industrial properties – defined as “flex” space with combinations of office and warehouse, distribution or manufacturing – left over from last decade’s growth cycle and subsequent bust have been sold to new investors at discounts, market-rate properties have not enjoyed the same attention.

In fact, many market-rate industrial buildings have failed to attract buyers and are being offered at or below replacement costs. Moreover, almost no new construction of new flex space is being planned in the Sarasota area, where there is 18.7 million square feet of industrial space overall. At present, roughly 2.02 million square feet is available for lease, a 10.1 percent vacancy, while 713,616 square feet is on the market for sale, or 4 percent of the overall market total.

The lack of new construction is significant at this point in the current commercial real estate cycle because industrial buildings – and ultimately their attractiveness to investors – offer a unique window into the area’s employment health. Typically, flex buildings are occupied by small, service-oriented businesses that cater to homeowners or other small businesses.

When the economy is robust, those businesses flourish and move into flex spaces to accommodate increased demand and as a testament to their confidence in future growth. It is then that they also tend to add new employees to meet demand.

When the economy is uncertain or contracting, by contrast, small businesses that occupy flex space often have to shed workers to save money and contract their space needs.

That the area’s industrial sector has failed to fully recover investor demand in what is now the fourth year of a typical seven-year recovery period is telling, and indicates that perhaps Sarasota’s service-dominated economy has peaked for now.