Commercial Real Estate Trends: Florida – Covid-19
Following the Great Recession, investors have long been wary of the sunshine economy’s exposure to economic downturns. During the post-2008 crisis, the state was one of the hardest-hit areas in the entire country as we saw entire neighborhoods collapse economically, with real estate being illiquid and sold for pennies on the dollar if they could even be so. Now that the coronavirus pandemic has led to a swift economic downturn domestically and internationally, the same questions have arisen – how will Florida fare?
As of now, the trends for Florida have not been as negative as predicted. Like much of the world, the local economy has been forced to a slowdown or even short term shutdown. As a result of local laws, national suggestions from the white house, and liability concerns, property traffic has slowed significantly. With people locked in their homes as well as practicing, they are far less likely to visit a property. This being said, there are several substantial differences between today’s downturn and our last recession.
To start, technological innovation has already entered the real estate marketplace and was already transforming how people visit properties. With virtual tours, walkthroughs, and staging already in practice for the marketing of many locations, the stay at home order was certainly impactful, but less so in terms of halting activity as it would be in the past. From behind a computer, many prospects have been able to tour the location of their dreams while also laying out how they would fit in a space, workflow, etc. In addition, while COVID-19 has affected the state and been in the news recently due to spikes in case numbers, the state overall has been much less restrictive economically than other parts of the country.
The overall effect of the pandemic will not be known for some time; however, the trends of the Florida market have generally followed the trends of the national market.
Tourism / Destination Economies
The tourism sectors and assets catering to those economies have been hit hard; however, that is not only a Florida problem. If you have a luxury vacation-destination hotel in 2020, you will be in tough times regardless of your state. In many cases, Florida has actually been better off due to its lax restrictions.
While the specific tourism locations may have been hurt, some of the ancillary parts of these economies have fared better. Home purchases in vacation markets such as Naples have increased 30% in May/June from this time last year as many high earners made their second homes their primary residence. If you are forced to work from home, why not do so in an attractive relaxing environment. Other examples include a 173% increase in New York buyers considering homes in Orlando compared to this last year.
This same thinking goes for retail. While retailers were not operating or operating in a limited capacity for a short period in the state, the fraction of time for the county – mandated retail shutdowns have been a fraction of that in the Northeast. Many wealthy individuals who would usually head back to the Northeast due to the spring and summer heat in Florida have chosen to stay in state for the time being as their at-home states of Pennsylvania, New York, and others were much less lax on their rights to attend bars, eateries, and other general public establishments.
The 2010s became known for the revival of American cities. City centers across the country that had seen a lack of development activity for decades were suddenly the place to be. People young and old flocked to city centers to take advantage of short commutes, social interactions, and an overall increase in quality of life where the desire was to live, work, and interact with lifestyle locations within a short distance. People’s lives quickly became intertwined and close-knit. People shared small living quarters, such as small unit apartment buildings, to be able to be within driving distance of amenity locations and nearby urban retailers. Jobs also seemed to flock to city centers as companies and property developments seemed to move nonstop to the city. This growth saw cities grow 18% faster than the suburbs in 2010 and continue that trend for years. That trend started to reverse as people sought better schools, an avoidance of rising taxes, cleaner environments, less crime, and an overall less expensive lifestyle in the suburbs. This trend still saw strong urban growth, but a 2x growth of the suburbs than the cities. While this trend was growing at the pace of a jog before the pandemic, recent events have pushed this trend to a sprint.
For months city residents have felt like they were in jail. Locked out of their desired amenities such as restaurants, public transit, or even the common areas of their buildings, they have been confined to the small living quarters they signed up for only to be able to take advantage of their now-closed surroundings. With the pandemic dragging out stay at home orders and many employers continuing work from home policies even with restrictions lifting, people want out of the cities. A new analysis by the American Enterprise Institute has shown that home purchases in May through Mid-June in non – urban areas have increased by 1/3 more than the same period last year. By the same note, home purchases in the least dense zip codes of cities have increased as much as the densest year to year.
Fortunately for Florida, their urban areas have been less affected as restrictions were lower, and the social justice riots and accompanying violence, have been significantly less present or impactful in their major cities.
The effects on the office market are very much to be determined. The activity has been slow; however, vacancies have not spiked; they have remained steady. Many companies are navigating work from home policies, testing their effectiveness, and dealing with liability concerns. We may not know for a year how the market will be affected.
Like the rest of the country, sheltered at home, consumers have reduced their brick and mortar shopping, meaning more online deliveries, driving a need for both e-commerce, traditional warehouse, and cold storage space. Hundreds of thousands of square feet have been leased despite the pandemic, mostly fueled by essential services needs. Any potential vacancy issues will be a result of pre-COVID industrial fascination as opposed to pandemic related issues. Before the pandemic, much of Florida (in particular south Florida) was overbuilding industrial, whose substantial demand absorption numbers were lagging behind the overly ambitious development numbers. That said, there has been a spike in activity; therefore, buildings in this sector should be ok in the long run.
In general, Covid-19 has pushed already occurring trends to an extreme emphasis in the short term. For those who were on an innovative trend, they should generally be ok. For the first time in a long time of economic cycles, those present in a recession have been wishing they were in Florida as opposed to areas such as the Northeast.