Real estate experts wonder if the explosive growth will ever come to an end.
The Sunshine State, known for its tropical climate and endless summers, has also enjoyed strong economic success the past few years. In some parts of the country, developers and lenders are seeing the start of a slowdown, but in Florida that is not happening. In fact, just the opposite is occurring.
Construction on all levels is buzzing around the state. Population continues to increase, as well as job growth. As a result, absorption of commercial space continues to be strong. Nowhere is this more evident than in South and Central Florida
South Florida South Florida has earned a reputation as a place for companies to locate their Latin American headquarters. From the ritzy new towers under construction in downtown Miami's Brickell Avenue to the continued breakneck growth around Miami's airport, there are no signs of a slowdown.
"There's a tremendous desire to be in South Florida, especially for multi-national companies," says Jim Nolan, executive vice president of Miami-based United Trust Fund. "Latin America is a vibrant economy and bases its entry into the United States through South Florida - not just Miami but also Broward County, Fort Lauderdale and up the Gold Coast."
There are approximately 4.7 million people living in the South Florida area. In fact, one out of three people living in Florida live in South Florida.
"Because the area has grown significantly in terms of development the last five years, the once seemingly limitless amount of land available to develop commercial property is pretty much dried up," says Tom Kates, president of Fort Lauderdale-based Stiles Realty Corp.
The only area in South Florida that has a substantial amount of undeveloped land is Palm Beach County, says Kates. "This is where the majority of new development will take place in the next 10 years, because the county has more land. Development in the Palm Beach area is booming."
There are some small pockets of land that can still be found in the Miami area, but large sites are extremely difficult to find and prices are high. Broward County is also developing fast and is seeing a lot of residential development, which is triggering more commercial development, including shopping centers.
Miami is now seeing an explosive situation occurring. "We had a first-class convention center but not enough hotel rooms to match what the convention center could hold," says Sheldon Greene, president of Sheldon Greene & Associates Inc. of Miami. "Those rooms are now coming on line. It's explosive what's developing, and it's not just one specific area. It's throughout the city, and goes as far as Hollywood and Fort Lauderdale," adds Greene.
Stephen Moss, chairman of Tampa-based Holland & Knight LLP, says "development has been progressing westward toward the Okefenokee Swamp, and there is now a push to come back east. In Broward County, it's called Eastward Ho."
The South Florida market is robust in the four main sectors - apartment, office, industrial and retail, but the hottest markets are hotels and apartments. The CBD office market is very strong because the demand outstrips the supply. Retail and industrial are not far behind, plus companies are building out businesses in single-tenant, net-lease investments.
"With interest rates stabilized, and the migration of 50,000 to 75,000 people coming into the area as permanent residents per year, things are going well," notes Gene Berman, vice president and general manager for the Fort Lauderdale office of Palo Alto, Calif.-based Marcus & Millichap.
Historically there has been a migration from Dade County to Broward County, and from Broward County to Palm Beach County. Tracts of available land are now under development. CBD office rents still remain strong at more than $25 per sq. ft. full-service gross.
Office slowdown? "Because of our location on the peninsula and the close proximity to the Caribbean and Latin America, South Florida has become a technological hub," says Kates of Stiles Corp. "Soon there will be several network access points, which will be critical in telecommunications. Because of this, we're seeing a lot of tech firms wanting to locate here."
Boca Raton was the birthplace of the personal computer, developed by Armonk, N.Y.-based IBM. As a result, that area has become a high-tech draw, and is referred to as "Photon Beach." Companies such as Nortel also have a major presence in the area.
An industrial halt The industrial market is very tight in Miami. The market is being developed predominantly in the Broward County area, the Miami International Airport area and west of the airport.
The industrial market has slowed down a little because there was a large volume of product built in 1999, adds Kates. "Some industrial space built in the last six months has taken a little longer to lease. The pace is still good, but not as good as it was the previous two years."
Sizzling hotel market The hotel market in Miami continues to flourish and outpace the other sectors. There are many new hotels opening in the Miami area - a Mandarin, three Ritz-Carltons, a Marriott and a Four Seasons. The hotels will add more than 1,000 new rooms.
"What's mind-boggling is the number of new luxury hotels under construction in the Miami area," says Greene of Sheldon Greene & Associates. Atlanta-based The Ritz-Carlton Co. is building three hotels at the same time. The company is building a 300-room hotel in Key Biscayne, a 120-room hotel in Coconut Grove, and is remodeling the site of the old DiLido Hotel on South Beach into a 380-room hotel. The facilities will have abundant meeting and ballroom space, according to Greene.
Toronto-based Four Seasons Hotels and Resorts is building a 297-room hotel on Brickell Avenue that will include approximately 19,000 sq. ft. of meeting space. A 296-room Marriott and a 329-room Mandarin Oriental also are planned for the same area. The Hotel Intercontinental has recently undergone a major renovation.
"What's occurring is the new developments are causing existing hotels to upgrade their facilities. As a result, major renovations are under way," says Greene.
In the first quarter of 2000, the Miami area hotels had the highest occupancy rate in the country. Miami also has the third highest average daily room rate, behind New York and San Francisco, according to Greene.
There are several reasons for the popularity of the city's hotels, according to Greene. "South Beach, a historic area at the southernmost point of Miami Beach, has become popular, and that offers stability and permanency. In that immediate area, the 800-room Loews Hotel opened in late-1998, and was the first major hotel built in three decades in that area."
Greene says the hotel brought the world's attention to South Beach and Miami Beach. Under construction next to Loews is the World Palm Crowne Plaza, which has 422 rooms, and the Marriott, which recently opened,.
The hotels are within walking distance of the Miami Beach Convention Center, which has more than 500,000 sq. ft. of exhibit space. As a result, the convention center is now able to handle larger conventions.
Some of the developments in Miami are multi-use. For example, the Four Seasons hotel will have offices as well as a retail complex. Another building, Espirito Santo Plaza at 139 Brickell Ave., will have a 36-story hotel with 203 rooms, 121 condominiums, a health club and retail space.
Apartments in demand According to Dallas-based M/PF Research, the South Florida apartment market showed high demand during the second quarter's normally weak absorption period. Demand as of June exceeded 16,700 units, more than double the completions in the same time frame last year. The occupancy rate was much stronger in Dade and Broward counties than in Palm Beach County.
Rent growth averaged 4% among South Florida's communities through the past year. Considerable product is due for completion by year's end, and much of that is in competitive Palm Beach County.
The occupancy rate in Dade County is 97.5%, the tightest area of the South Florida region. Ongoing construction is fairly limited within Dade County, with approximately 2,700 units under construction.
"The market is strong in segments," says Jack Winston, senior consultant with New York-based PricewaterhouseCoopers. "The multifamily sector, including the condominium market in Dade County, continues to be very strong in the luxury and super-luxury segments."
Winston adds that the number of multifamily permits will probably total 4,700. Any declines in the multifamily market will be due to a lack of available oceanfront land, he says.
As fast as developers build space, companies move to meet the demand. Is there an end in sight?
"I wouldn't be surprised if all this doesn't continue for a few more years,' says Bob Zegota who is responsible for industrial and land deals in the Tampa office of Northbrook, Ill.-based Grubb & Ellis. "We have worked through a period when a lot of unsophisticated dot.coms started on a whim and a shoestring. Now, I see a second generation of technology companies, much more sophisticated, and that is good news for everyone, including people in real estate."
Central Florida In Central Florida, the Tampa Bay and Orlando areas do more than their share of competing for corporate relocations and expansions. But, even though leaders in the two cities often talk about how the metro areas are different, they are similar in one crucial respect: job growth.
Both cities ranked among the top 10 areas in the country for job growth last year. That job growth means more new offices and industrial parks, with hotels, apartments and retail outlets popping up to service the growing population. As a result, continues to be one of the hottest in the Southeast for commercial and residential real estate.
The rebirth of St. Joe "It's the same old tune," says Frank Herring, president of Jacksonville-based St. Joe Co.'s commercial real estate division. "Everything is driven by job growth, and that keeps on going."
While outfits such as Raleigh, N.C.-based Highwoods Properties and Charlotte, N.C.-based Crescent Resources continue to build projects in Central Florida, the big news this year is the arrival of St. Joe Commercial. The company has 535,000 sq. ft. worth of projects under construction across Florida, and now owns 1.35 million sq. ft. of office and industrial space. In the next 12 months, St. Joe plans to build another 1 million sq. ft. of space. One of the company's major new targets is the Tampa Bay area, where St. Joe has spent $50 million and plans to double that figure.
Of course, St. Joe has plenty of company in making aggressive plans in Florida. As of late summer, there was approximately 6 million sq. ft. of office space under construction around the state, with much of the action in Orlando and Tampa.
Around the country, experts worry about rising interest rates and the continuing evidence that the economy is slowing down. But in Central Florida, real estate executives say a slowdown will be barely noticeable. If the area's economy has been cruising at an A-plus level, it may slow to an A- minus in the coming year.
Still, concern about the rising cost of borrowed money is legitimate, real estate executives say. Already, a number of possible projects have been put on the shelf for now, and with the prime rate above 8%, some developers are getting nervous. "Each glitch upward is going to reflect in real estate deals," says Zegota of Grubb & Ellis. "If the prime rises above 10%, as some are predicting, that would really have an impact."
The other cautionary note in all this optimism is one that's always in the back of a real estate executive's mind - the specter of overbuilding.
"Someone was asking me the other day, `How did a certain market get overbuilt?'" says Tim Prunka, who is responsible for the Florida and Caribbean operations for the South Florida office of New York-based Insignia/ESG. "I told him if you see a building in a certain area is plausible, you aren't the only person to see that. As a result, you have five buildings where only one was enough."
Even though developers and real estate executives are preaching a bit of caution, no one seems to be applying the brakes, except perhaps in retail, where developers are realizing there's now a glut of new stadium-style movie theaters under development.
Don't expect to see many new theater complexes on the drawing board in the Tampa Bay area. Tampa has been inundated with them, and now St. Petersburg is receiving its first such project, part of the 154,000 sq. ft. BayWalk movie/retail/restaurant complex developed by The Sembler Co., a St. Petersburg-based firm.
As for St. Joe, it has been transformed from a sleepy company that focused on making paper products, selling timber and running a railroad into a fast-moving real estate company. The company's CEO, Peter Rummell, is a former Walt Disney Co. executive who was involved in the development of Walt Disney Co.'s planned community called Celebration near Orlando.
St. Joe is moving to parlay its position as Florida's largest private landowner by developing new planned communities and office properties around the state.
St. Joe Commercial has bought properties in Clearwater, and along Tampa's Interstate 75 corridor. In southwest Orlando, the company is developing Millenia Park, a 750,000 sq. ft. office complex. St. Joe also partnered with Orlando-based CNL Group Inc. in building the 363,000 sq. ft. CNL Center, one of three new office towers that have been constructed in downtown Orlando this year. St. Joe also is working on a business complex called Gran Park at SouthPark.
Succeeding in Central Florida real estate also means having the ability to move fast, because it's a market crowded with deep-pocket developers. No one developer has an overwhelming presence.
Highwoods built the 341,000 sq. ft. Capital Plaza in downtown Orlando, and is finishing a corporate campus north of Tampa for Intermedia Communications, though the future of that facility is in question because WorldCom bought Intermedia earlier this fall.
Charlotte, N.C.-based Crescent Resources is starting the second of what will be three office buildings in Tampa's West Shore District near the planned International Plaza, a collection of upscale stores such as Lord & Taylor and Nordstrom.
And the Tampa-based Hogan Group is planning Heritage Park, the most ambitious office project in downtown Tampa's history.
The apartment boom There is also an apartment surge occurring in Orlando, Tampa and St. Petersburg. Post Properties of Atlanta is one of several developers building in downtown Orlando. Post also has aggressively constructed on Harbour Island, a community just across the Garrison Channel from the core of downtown Tampa.
Another major player in Central Florida apartment development is Orlando-based Zom Development, which has projects under construction in downtown Orlando, south Tampa and downtown St. Petersburg.
"You have to try and get a good deal on the land and be careful of submarkets that are overbuilt," says Greg West, vice president of development for Zom.
Zom and other developers, such as Echelon Development of St. Petersburg, are receiving help with tax incentives in downtown Orlando as the companies work to bring rental housing to that area. And Zom is using some novel approaches to downtown development: In St. Petersburg, the company is building a 277-unit apartment complex that will sit on top of a contiguous parking deck, borrowing an idea from high-rise condos.
Re-emerging downtown growth Around the Tampa Bay area, vacancy rates are low, even though new construction will continue to test how well the area can absorb new space.
One ambitious project is the planned hotel/retail/office project named Tampa Bay 1, which is set to be built in the West Shore area of Tampa by New York-based Bromley Development.
But perhaps the most interesting development to watch in the Tampa Bay area this winter will be the opening of three new movie/retail/restaurant complexes. The previously mentioned BayWalk project, with a price tag of $40 million, is under construction in downtown St. Petersburg.
The Sembler Co. has partnered with Columbus, Ohio-based Steiner & Associates and Atlanta-based BVT Equities to build Centro Ybor, a 210,000 sq. ft., $48 million project, in the Tampa area of Ybor City. The Hogan Group is developing a third project, called Channelside, which will have 230,000 sq. ft. of space at a cost of $45 million on the waterfront of downtown Tampa. Skeptics wonder if the Tampa projects can prosper, because they are only one mile apart.
In Orlando, developers and city leaders are looking at the growth of downtown as a sign that the city may be moving toward becoming a more traditional business center. For years, much of the city's growth centered on areas north and west of downtown, with the Disney and Universal theme parks providing much of the impetus.
With three new downtown office towers filling up, and new apartments arriving, there is talk of attracting more white-collar jobs, as well as an emphasis on fields such as laser technology and the production of silicon wafers for computer chips.
Both Orlando, known for its theme parks, and Tampa, known for its call centers, are trying to be thought of as big cities, and that can translate into the ability to get more sophisticated businesses and getting higher office rents, experts say. "Now, you have more companies willing to look at Central Florida that never would have before," says Zegota of Grubb & Ellis. "That's the first step."
"To gauge how remarkable this real estate boom has been in Central Florida, consider the absorption statistics for the state," says Larry Richey, senior managing director for the Florida operations of New York-based Cushman & Wakefield.
There is more than 6 million sq. ft. of office space under construction this year, but the market is showing the ability to absorb as much as 8 million sq. ft. of space, says Richey. "That would result in no change in the vacancy rate, which is a relatively low 13%."
With Tampa and Orlando offering a strong economic base and a continuing real estate presence, both cities can now lay claim to the fact that they are not just attraction cities, but cities that can offer the whole real estate package.
With Florida's population growing, employers continue to look at cities such as Orlando and Tampa as places where they can find workers. Both cities have come out of the shadow of offering only hospitality services. The cities can now boast of a strong CBD and low unemployment as well as their sunny climate.