“With the market moving at such a frantic pace, it was tough for us to find the time to pull this data and provide some perspective on it. We do believe, however, that the statistics are important and tell a story of recovery and rebound, one which we hope has some longevity and sustainability for at least the next few years.”- Dan Drotos, Vice President, CCIM, SIOR
OFFICE SPACE FOR SALE:
The office market, which had taken some major hits since the recession of 08-09, has shown a slow but steady rebound in pricing over the past few years following a multi-year plateau that saw price per square foot hover around $100/SF For Sale and $12/SF Gross For Lease. Today’s situation is much brighter. Year to date Office sale comps saw an average of $133/SF for sizes under 5,000 SF, $136+/SF for sizes between 5,000 SF – 10,000 SF and a slight dip to $118/SF in office sales over 10,000 SF, which is expected. New office construction has returned due to a lack of supply relative to demand. The construction and labor market, which are usually tied to the general commercial real estate market, are seeing extremely high demand, which in turn is driving up the cost of construction. From projects we have worked on, we are seeing prices to build new office north of $200/ SF for suburban style and upwards of $250-$300+/SF for Class A or institutional grade. This gap in value between new ($200+/SF) and re-sales ($130+/SF) should continue to close, which bodes well for Sellers.
OFFICE SPACE FOR LEASE:
The lease market for office space saw a healthy amount of transactions in Q1 & Q2 of this year. Leases under 4,000 SF (the bulk of the deals) saw an average rate of $14.57/SF Gross. Sizes in the 4,000 SF to 10,000 SF range came in at $15.39/SF Gross. There were not enough leases above 10,000 SF to accurately reflect that section of the lease market. Again, this shows a slow but steady rebound in pricing. Landlord’s are conceding less in terms of rent abatement and/or TI and what was a Tenant’s market for many years is seeing a re-balancing.
RETAIL SPACE FOR SALE:
Even though we are hearing a lot about the negative impacts e-commerce is having on traditional brick and mortar locations, Alachua County has seen a surge in retail activity being driven by the new phases of Butler Plaza and Celebration Pointe. This activity has had a spillover effect along the Archer Road/34th Street/Newberry Rd. corridors. Transaction volume has been strong. The data presented here, does not take into account retail investment sales although we can tell you that Cap Rates are extremely compressed with single tenant NNN properties trading below 5% in some circumstances with national credit tenants.
Retail sales above 5,000 SF came in at $219.23/SF with the smallest size being 9,002 SF and the largest 45,867 SF. A decrease in price per foot as size goes up is standard. Retail sales under 5,000 SF in Gainesville saw an average price per SF of $364.69 with 6 transactions reported.
Retail sales under 5,000 SF in High Springs saw an average price per SF of $94.85 with 4 transactions reported. High Springs has recently experienced a robust amount of activity, so we singled out this local (small-town) activity.
RETAIL SPACE FOR LEASE:
As e-commerce continues to strengthen look for turnover from retailers with tired or dated brands. Experience based retail and service based options, a phenomenon that e-commerce cannot compete with, will become the norm in brick and mortar retail. Businesses will need to evolve and up their game to compete. Retail leases reported a significant number of transactions (23 total) with approximately half being at 1,500 SF or less and half more. The high was 7,200 SF. Lease rates reported were all NNN or adjusted to reflect NNN. Overall rates averaged $18.45/SF NNN.
COMMERCIAL INDUSTRIAL, OFFICE WAREHOUSE, WAREHOUSE SHOWROOM SALES:
From a global perspective, Industrial assets, which we define as Office/Warehouse, Flex Space, Showroom, or just Warehouse, has been one of the hottest CRE sectors over the last 12-18 months. With the economy cruising along, employment numbers on the rise, and consumer confidence up, the Industrial CRE market has reaped those benefits. Locally, our market does not have a lot of total square footage of this sector compared to others such as Office, Retail, Multifamily etc. however the performance of this market is seeing an uptick in pricing. Although there were only 4 recorded sales (all transactions were under 7,500 SF) in the first 6 months of the year, the average sales price came in at $67.68/SF with a high of $96/SF and a low of $48/SF. This is a significant improvement from the $30/SF – $40/SF our market saw up until a few years ago.
The Industrial lease market saw plenty of activity in the first half of the year with 9 leases under 5,000 SF and another 6 over. Leases under 5,000 SF had an average lease rate of $7.98/SF Gross. Over 5,000 SF Leases came in at $9.15/SF Gross. Due to our relative low amount of supply, keep an eye on prices starting to creep up further should the demand persist.
COMMERCIAL RETAIL LAND SALES:
With the overall CRE market currently being so hot, land has been one of the most active sectors. It also tends to be the most volatile from a value and location standpoint. The difference of 1 block or one street can mean serious increases or decreases in value. The old adage of “Location, Location, Location” is most apparent in the current land market. “A” locations are commanding price points many times as high or higher than what was reported in the pre-recession peak years of 2006-2007. “B” locations are starting to warm up and “C” locations, although not well represented in our data, could be close behind should the market rally continue for a few more years. Land Sales reported were divided into 3 categories: Retail, Multifamily, and all other types. They were further broken down into under 10 Acres and over. Under 10 Acre retail land sales (which all were under 2 acres) reported a very strong average of $775,000+ per acre. In select premium locations, we are working on multiple land transactions in the $1M/acre range. Over 10 Acre sales averaged $131,000/acre.
COMMERCIAL LAND (OTHER) SALES:
Non-retail land transactions included types: Office, Industrial, Commercial Mixed-Use, and Agricultural. Under 10 Acre sales which included all of the types other than Agricultural reported an average of $116,400/Acre and over 10 Acres (which only included Agricultural) averaged just under $9,500/acre.
“Multifamily in general has been a very active component of the recent market with land sales reflecting sales prices in the range of $8,500/unit (apartment unit) for market rate properties in B-C locations and up to $15,000/unit for A locations. Student housing locations in close proximity to UF reflect even higher price points with some exceeding $100,000/unit. Transaction sizes range from 1-4 acres (near UF) and up to 25-30 acres in suburban locations.” – Mike Ryals, Senior Vice President
FACTORS IMPACTING REAL ESTATE:
In the beginning of 2018 we have observed several factors and cirsumstances that are influencing the real estate market. The City of Gainesville completed a comprehensive update of its Land Development Regulations implementing a“formed-based” code. These recently implemented regulations have the potential to change the face and characteristics of new development and redevelopment within the core portions of the City as well as around the eastern and northern perimeter of the UF campus. Increased densities and taller buildings along with greater allowances for uses are opening new and greater opportunities for building improvements than before. As a result, potential increased development yields and development characteristics are driving factors influencing the upward movement of prices for real estate effected by the new regulations. The University of Florida recently completed a 50-year Strategic Master Plan of which the City of Gainesville has partnered with UF for implementation. Many facets are included in the plan from driverless automobiles, to smart streets, to increased density/intensity, art in public places, infrastructure enhancements and encouraging new development and redevelopment to create a live-work-play environment in the eastern portion of Campus and the areas betweens UF’s campus and downtown Gainesville. The Plan’s visual and clearly articulated communicated vision for the future has created renewed energy, vigor and stimulus needed for Gainesville. The implementation of the Plan will bring opportunities for owners, buyers, existing and new residents of Gainesville, businesses, UF, and our community. Public/Private partnerships are developing, and private industry is joining in for the implementation of the Plan. The future is bright for UF and Gainesville.
“The City land development code update to a form-based code with higher allowed/required densities and taller buildings has greatly increased the value of properties affected by the new code changes. The UF strategic master plan focus on properties close to UF and between UF and downtown Gainesville have increased attention and demand parameters which are also positively affecting pricing on properties influenced by the Strategic plan.” – Rory Causseax, P.E., Commercial Realtor®
We hope you get some insight from this report on how our CRE market is performing to date. Please note: comp data was pulled from local MLS and national Costar databases. If you would like further details on this report or if we can be of assistance regarding your commercial portfolio, please reach out to the Drotos Ryal Group.
Dan Drotos, Vice President, CCIM, SIOR | Dan@TeamRyals.com | 954.551.9846
Mike Ryals, Senior Vice President | Mike@TeamRyals.com | 352.240.2709
Rory Causseax, P.E., Commercial Realtor | Rory@TeamRyals.com | 352.317.6341