(Gainesville, FL)- Another year has come and gone, and the Drotos Ryals Group was again fortunate to continue our strong transaction volumes from previous years. In fact, within Alachua County we recently surpassed $1 Billion in career transaction volume following 15 years of consistent $50 Million+ Sale and Leasing activity. This is due to both a continuously improving real estate market, along with the cohesive nature of our team and the addition of another new team member, Lauren Johnson. Lauren has taken our marketing and listing management to a whole new level. Her addition to the team has solidified our commitment to our customers and the quality of service they get, in turn keeping us at the cutting edge of Commercial Real Estate technology. 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. The amount of repeat business we get each year is humbling and is something we at the Drotos Ryals Group are very proud of. We have big plans for 2018 and are excited to implement them, which in turn, should shape some of the commercial environment you see in our community.
2017 was a big year…
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 upcoming year. One of our Bosshardt colleagues, Perry McDonald, produces a comprehensive statistical review that we have, again, included as part of this year’s report, which is attached at the end. Perry provides a unique perspective on the market because not only is he one of the most active residential agents, but he also handles commercial and land transactions as well. Feel free to reach out to Perry or us for clarification or further discussions on the points addressed below.
The recurring theme over the last few years leading in to 2017 was that the market is “continuing to recover”. Towards the end of 2016, the phrase “continuing to recover” was replaced with “has recovered” for certain asset classes, especially in “A” locations. The old real estate saying “Location, Location, Location” continues to be in vogue and we are seeing an increase in activity, pricing, and demand among virtually all the property types we work in (Office, Retail, Industrial, Multifamily, & Land). Some of these increases are more tempered than others but the overall trajectory of the market that we have observed this past year is that of steady upward momentum. The data contained in the following report comes from three main sources: Costar/Loopnet which is a national database, Multiple Listing Service (MLS) which is more local but encompasses much of what is in Costar and Loopnet, and the Drotos Ryals Group’s own transactions. On average there are approximately 300 commercial transactions in Alachua County each year. We handle around 80 of those, which gives us an intimate knowledge of a nice sample set and allows us to keep our finger on the pulse of the overall market. Because our transactions may lean in different directions year to year (sale vs. lease) or (heavy office vs heavy land) etc. we cross reference our general market knowledge and gut feel with the data mentioned above.
A snapshot of various market segments follows…
Office – Demand for Office exploded in 2017 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 $130-$145+ 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 2017 and we are continuing to see some new office developments 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 your needs, it is safe to say that it can probably be purchased between $130-$145/SF with the exception of some premium properties in locations such as Haile or on hard corners. That same office to build, will be every bit of $225+/SF with cost of the land included, if you can find a lot to build on. 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 both Sellers and Investors. The raw data (2016 vs 2017) of overall office sales is deceiving because it shows a sharp decrease however we believe this is due to a lack of supply not demand.
Office spaces (for lease) continue to be abundant with lease rates increasing at a slower pace than sales prices, but increasing nonetheless. However, well-located properties are seeing a nice rebound in rates. For a few years (2011-2015) 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. If you are thinking about leasing your office, the most traffic we are getting is among well-located, turn-key properties, with Landlords willing to make up-front concessions such as Rent Abatement, Tenant Improvement dollars (TI), or teaser rates.
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, PF Changs, and a food hall amongst others in the Towne Center. The activity at Celebration Pointe has been slower, but with Bass Pro and Infotech open and soon to be followed by Indigo Hotel and a full-service Regal Cinemas, the project should fill out more in 2018. The interconnectivity of the two projects, linked by the new I-75 overpass, has drastically effected traffic patterns along the congested Archer Road corridor. Three new hotels are in the construction phase along Archer Road, which will provide business and medical travelers, along with visitors to the University, a variety of new accommodation options. Two large in-house retail leases finalized in 2017 were for a pair of first- to-market Tenants in Rose’s and Ollie’s Bargain Outlet at the Northside Shopping Center. After Winn-Dixie left the center, these Tenants (60,000+ SF) have provided a huge jolt of traffic and activity to this blue-collar section of the market. Another notable retail deal, completed by the Drotos Ryals Group, was the Rural King, which opened in the old Sam’s Club off of NW 13th Street. This too is a first to market store for them. Gainesville has generated a buzz in the retail world and we have seen that with an explosion of new retailers and restaurants wanting to locate here. We believe this trend of synergy is going to continue throughout 2018.
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 kicked this off at the beginning of 2016 and has proven to be a huge success, providing students quick to-go options within walking distance to their classes and apartments. Since then The Standard, which encompasses three city blocks at the corner of University Ave and 13th St. has opened, which includes, student housing, a Target Express with pharmacy, Chic-fil-A, Chase Bank, and a variety of other food options. Across the street a new urban Publix replaced the long standing 24 hour McDonalds, which moved around the corner and was re-built on 13th. These projects, which contain new levels of density, are beginning to transform the landscape around campus, providing an “Urban/City” feel, which hasn’t been seen before.
We 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 Starbucks, Chase Bank, and North Florida ER), which should lead to smaller 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 $50’s/SF. Even second-generation retail space in good locations, are achieving upper $20’s to mid $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-$65/SF and larger properties trading at $35-$45/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 finished up is Prairie Commons, a 36,000 SF Flex development at the corner of Williston Rd & I-75. Tenants include: Trane, Option Care, Domino’s Pizza Corporate Office and Arthur Rutenberg homes. This project has great visibility and access to I-75 and provides a nice mix of high-end office and warehouse depending on the needs of a Tenant. We are working on another 15,300 SF Warehouse/Flex space at 2615 NE 18th Terrace called Hope Park, which will provide Class A industrial/warehouse/flex/office space with convenient access to Jacksonville and Ocala. The space will be delivered in Q3 2018 and we are leasing now.
Vacant Land – This sector took off in 2016 evidenced by the amount of construction that now scatters the county landscape. New (residential) subdivision development is back with communities of all varying price points emerging. Our team continues to handle a variety of Residential, Retail, Senior Affordable, Hospitality, and Office land transactions, 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, culture and activities surrounding the University. One surprising drop-off that we incorrectly predicted would continue into 2017 is the activity of ALF (Assisted Living Facility) development. We had a run on sites in 2016 and very early 2017 but that activity has now subsided. This market sector does come in waves, however, so we would not be surprised to see it reemerge in 2018.
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 have handled in the last couple years (Taco Bell, Carespot, various medical and general 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 – although banks are playing a larger role in 2017 than they did in 2016 – 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.
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 2018.
*Data for this report was pulled at the beginning of December therefore some extrapolation was undertaken to account for the lack of posted data in month 12.
Happy New Year!