Thoughts on the Year Ahead - Winter 2016

Barring a national economic setback that would have ripple effects in Sarasota, the region’s commercial real estate market is poised for yet another bump in 2016. Retail, restaurant and industrial properties are likely to gain strength and build on momentum already in place.

Conditions for retail properties, in particular, should improve thanks to the significant number of residential units and hotel rooms expected to come online delivering new customers. We anticipate about a 60% increase in downtown residents and a significant bounce in hotel reservations, both of which should bode well for shops and restaurants and fuel demand for the city’s entertainment venues.

Vacant industrial space, meanwhile, should continue to be absorbed, which will create an opportunity for new construction to occur in the coming year. Most bank-owned and distressed industrial buildings have been sold, closing that opportunity for investors, at least for now. We expect that if current trend lines in the market continue, users will over the next 12 months begin to purchase available industrial lots for new construction. In addition, a few of the area’s major developers may decide the time is right to build new industrial and flex space on a speculative basis.

From a macro-economic perspective, while the Federal Reserve has begun to hike interest rates, the increases are likely to be so small in 2016 that the cost of capital will remain at historically low levels – furthering demand for commercial real estate. By some estimates, some $3 trillion is poised to enter commercial real estate markets nationwide over the next few years, the result of a lack of confidence in the stock and commodities markets. Sarasota, too, will garner its share of attention, and high-caliber commercial real estate properties will likely be in even greater demand by investors in the year ahead, as cap rates hover in the 4.5% range. As always, we believe that well-located, triple net leased properties with national tenants will command the lowest cap rates.