by: Dan Drotos
For Immediate Release:
Drotos Ryals Group 2016 Year End Review
(Gainesville, FL)- Another year has come and gone and the Drotos Ryals Group was fortunate enough to not only maintain, but surpass strong transaction volumes from previous years. This is due to both a continuously improving real estate market, along with the cohesive nature of our team and the addition of a new partner, Tammy Broxson. We had some very exciting accomplishments both professionally and personally that shaped our year including a marriage (Tammy), an engagement (Dan), a 4th grandchild (Mike), a CCIM designation (Tammy), and an SIOR designation (Dan) to name a few. We are grateful to our many friends, clients and professional associations for their continued loyalty and trust in helping us maintain this level of success. We have big plans for 2017 and are excited to implement them, which in turn, should shape some of the commercial environment you see in your community.
At the beginning of each calendar year we generally provide both a summary of the prior year’s general market activity as well as predictions for the direction we feel the market is heading for the upcoming year. One of our Bosshardt colleagues, Perry McDonald, produces a comprehensive statistical review that we decided to again include as part of this year’s report, which is attached at the end. Perry can provide a unique perspective on the market because not only is he one of the most active residential agents, he handles commercial and land transactions as well.
We have been saying this for a few years now but 2016 was another good year in our “continuing to recover” market. Now towards the end of the year, the phrase “continuing to recover” is close to or has been replaced with “recovered” especially with well located assets. The old real estate saying “Location, Location, Location” is back in vogue and we are seeing an increase in activity and demand among virtually all the asset classes we work in (Office, Retail, Industrial, Multifamily, & Land).
A snapshot of various market segments follows…
Office – Demand for Office exploded in 2016 with active inventory of existing space decreasing even further from the prior year. Pricing/values for office buildings (for sale) continued to improve and have increased from the $100-$110 per SF range in the last couple years to $115-$130+ per SF today and sometimes higher based on quality and location. These general values were in the $150+ per SF range in 2006-2008. As office activity continues to improve, inventory continues to shrink, thus helping (supply vs demand) push values upward. Last year we said….” These supply/demand factors (shrinking inventory and increasing values) should eventually cause an uptick in new office construction”. This has proven true in 2016 and we are starting to see some new office development pop-up. With the infusion of some new office product, we are seeing a gap in value from re-sale properties to new construction. If you can find an existing office that fits for your needs, it is safe to say that it can probably be purchased between $115-$130/SF with the exception of some premium properties in location such as Haile or on hard corners. That same office to build, will be every bit of $200+/SF with cost of the land included, that is if you can find a lot or parcel. With the cost and demand for labor and materials remaining strong, we believe the value of existing offices should continue to climb to close that value gap which will bode well for Sellers.
Office spaces (for lease) continue to be abundant with lease rates increasing at a slower pace than sales prices however, well located properties are seeing a nice rebound in rates. For a few years (2011-2014) the “$12/SF Gross (and sometimes lower) office lease” dominated our market. In those same locations, we are now seeing $14-$16/SF. The demand remains the strongest for small suites (less than 1,500 SF) and as size goes up, demand goes down and Days on Market go up. This is a typical trend in our market, with significantly fewer leases being signed above 5,000 SF than below.
Retail – Development of new retail projects/opportunities locally has increased significantly with some major projects such as Butler, Celebration, and the Standard. The success of Butler North has been amazing. The Tenant line-up includes Walmart, Sam’s Club, Dick’s Sporting Goods, Lowe’s, Total Wine, Marshall’s, Aldi, to name a few in the “North” phase and Whole Foods 365, PF Changs, and a food hall amongst others in the Towne Center. Bass Pro Shops has officially opened in Celebration and will soon be followed by Indigo Hotel, Infotech and a full-service Regal Cinemas. The interconnectivity of the two projects, linked by the new I-75 overpass, should drastically effect traffic patterns along the congested Archer Road corridor. At least 3 new hotels are planned or in the construction phase along Archer Rd. which will provide business and medical travelers along with visitors to the University a variety of new accommodation options.
Moving away from the traditional big box power centers, Gainesville is starting to see more urban in-fil projects which incorporate retail on the ground level. CVS at Social 28 which opened up at the beginning of 2016 has proven to be a huge success, providing students quick to-go options within walking distance to their classes and apartments. The Standard, which encompasses 3 city blocks at the corner of University Ave and 13th St. will have a Target Express with pharmacy, Chic-fil-A, and a variety of other food options. Across the street a new urban Publix to serve the student population is under construction. These projects, which contain new levels of density, are beginning to transform the landscape around campus, providing a “city” feel, which hasn’t been seen before.
We have also witnessed an increase in smaller neighborhood projects such as the new Chipotle/Mattress Firm at 441/NW 23rd Ave and the new Retail development at NW 43rd St/53rd Av (containing a Strabucks, Chase Bank, and North Florida ER) which should lead to more small vacant land (for redevelopment) activity in coming years. Retail pricing for former/existing space seems to be trickling upward at a moderate pace, while new (construction) space is achieving more price growth. This is somewhat due to the cost of new construction forcing these price points upward. Retail rents down by campus and amongst the new development of Archer Road are seeing upper $30’s to lower $40’s/SF. Even 2nd generation retail space in good locations, are achieving upper $20’s to lower $30’s with minimal TI and/or rent concessions.
Industrial – Industrial property was one of the asset classes hit the hardest in the market downturn. Locally, larger Industrial, Warehouse, Flex properties of 50,000 SF+ were previously hard to come by with available inventory usually around 2-3 total properties available. In the downturn, this number swelled to 8-10+ which drove prices down to sub $20/SF to buy and $3/SF or lower to lease. Now many of these properties have been sold or leased and we have a much healthier supply to demand ratio which has contributed to an uptick in for sale price per square foot as well as for lease figures. Smaller industrial properties, (under 10,000 SF) are seeing a price resurgence with properties selling at $55-$60/SF. Lease Rates are hovering in the $6-$8/SF Gross. We actually have new ground-up industrial/flex development occurring and leasing/selling which was unheard of since before 2008. One project we are working on is Prairie Commons, a brand new 36,000 SF Flex development at the corner of Williston Rd & I-75. We currently have just under 3,000 SF left. Committed Tenants include: Trane, Option Care, and Arthur Rutenberg homes. This project has great visibility and access to I-75 and can provide a nice mix of high end office and warehouse depending on the needs of a Tenant.
Vacant Land – This sector took off in 2016 evidenced by the amount of construction that now scatter the county landscape. New (residential) subdivision development is back with communities of all varying price points emerging. Our team handled a variety of Residential, Retail, ALF, Senior Affordable, Hospitality, and Office land transactions in 2016 which was less abundant in 2015 and non-existent prior to that. Alachua County remains a community attractive to retirees and Seniors due to the world class healthcare and the culture and activities surrounding the University. As the baby boomer population ages, we believe more development of ALF, Memory Care, and Skilled Nursing facilities will emerge to satisfy the demand.
Investment properties – Quality investment properties, with solid, sustainable investment returns (and quality tenants) continue to be the “hot spot” in most markets, but are hard to find. Many of the investment grade transactions we handled in 2016 (Taco Bell, Carespot, various medical offices etc.) were either never actively listed or were under contract before we could get them active. This, along with the vast majority of our deals still being cash, indicates there is still equity sitting on the sidelines and looking for a home that can provide any sort of premium return. If your business is looking for a means of generating capital without borrowing, you may want to consider a “Sale-Lease Back”. We have investors who will pay immediate cash for your property and allow you to remain in possession if you lease it back for a reasonable period. Feel free to call us to brainstorm further on this.
Location/location/location – In all sectors, location has once again become a primary force. Better locations are selling more rapidly and at higher price points. Frontage vs non-frontage; hard corners vs mid block; surrounding demographics, quality of surrounding properties all influence value.
Our advice to clients who are wanting/needing to sell or lease is very similar to what it’s always been… Make sure your property is in tip top condition and presents itself well vs competing properties and make sure you are priced consistently within ongoing market activity.
Position your property well (condition and price) and you will see some action.
Again, the Drotos Ryals Group thanks all of our clients, colleagues, family, and friends for entrusting us with their Commercial Real Estate transactions. We look forward to engaging with you in 2017.
Happy New Year!