SW Florida: A Hot Market (Real Estate Forecast Lee and Collier)

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As they look forward, Lee and Collier counties are like two siblings, joined at the rear with each looking to the future with a different perspective. The two counties are among the top 10 fastest growing in the nation, with Lee showing 3.6% growth and Collier realizing 4.4% growth over the past year, according to a mid-year market report by CB Richard Ellis.

Yet, whereas Collier is largely developed and, according to some commercial developers, largely “anti-growth,” Lee County has large areas available for residential and commercial development. To be fair, according to Larry Foster, managing broker/partner at CB Richard Ellis, “The leaders in Collier County and Naples are not against growth. They just want to slow it down for the infrastructure to catch up.” Nevertheless, the attitude of Lee County leaders and residents is more open to growth.

Frank D’Alessandro, owner of D’Alessandro & Woodyard commercial brokers, a RE/Max Realty Group company, describes Lee as a county in transition. Much of the commercially developable land already is built out. The U.S. 41 commercial corridor, for instance, is rapidly reaching the point where all that is left is infill. An exception, of course, is a large parcel on the east side of 41, south of Corkscrew Road and formerly part of the Sweetwater Ranch. The parcel remains vacant as a decision is made about where to build Southwest Florida’s next, and possibly last, regional mall. (The other site under consideration is near the intersection of Alico Road and Interstate 75.) Other commercially zoned parcels available along 41, north from Naples, through Bonita Springs and into South Fort Myers, carry hefty price tags.

The two major growth drivers in Lee County and the rest of Southwest Florida are east of I-75. Southwest Florida International Airport is one of them. Its extraordinary growth as an air hub is expected to make it the eighth busiest airport in the nation by 2010. Increases in passenger traffic and cargo shipments have been phenomenal. Passenger traffic breaks a new record each month, according to the Lee County Port Authority, which operates the airport. In July 2003, 388,000 passengers arrived or departed through Southwest Regional International, a year-over-year increase of 18.3% and 4.6% more than July 2001, prior to the World Trade Center attack.

Similarly, cargo, while down year-over-year, shows healthy growth over the past four years. Much of the inflow is from international sources, due to several influences. The Miami and Fort Lauderdale airports have run out of room for expansion, according to D’Alessandro. Southwest Florida also has created Free Trade Zones to encourage importation and transshipment. Perhaps most important says D’Alessandro, “Cargo aircraft that don’t have the range to reach Miami or Tampa, are making Southwest Florida International their preferred port of entry for distribution to southwest, south central and southeast Florida.”

All this activity is generating a bustling freight forwarding and customs business in the area near the airport. Paralleling this is a 2,700-acre tract, south of the airport and north of Alico Road, with 160 to 200 acres scheduled for development as a technology and research park. The location is considered ideal for these purposes because of its proximity to the airport on one side and Florida Gulf Coast University (FGCU) on the other.

FGCU is the other big growth driver in the two-county area. As the state’s newest and fastest growing university, FGCU is said to be looking for opportunities to participate in the local business community. Both residential and commercial development is cropping up around the campus, ranging from golf course communities to shopping and entertainment facilities such as Miromar Outlet Mall and TECO Arena. Both are north of Corkscrew Road between the campus and I-75. TECO Arena has become a landmark on the I-75, hosting everything from East Coast Hockey League games to rock concerts. Miromar continues to expand with 75,000 square feet of new shops, while across Corkscrew a new Miromar International Design Center is scheduled for development.

If Lee is in transition, Collier appears to be at a hiatus in its growth cycle. Todd Gates, owner of Gates McVey, describes Collier as a community with little commercial development opportunity left. Naples is built out with no opportunities between 41 and the Gulf of Mexico, other than infill or sites that are rehabbed or replaced. Even that is difficult between restrictive, no-growth zoning and astronomical impact fees in Naples/Collier County.

Gates says: “Collier County impact fees are twice as high as in Lee County, which is one of the reasons more commercial development is moving to Lee County and Bonita. I can build the same structure in Lee County for $40,000 less to start with, just from savings in impact fees in Lee vs. Collier.” Foster agrees, but feels differently about the impact fees. “One of the positive things about them is that they encourage the upgrading of buildings that are not subject to impact fees if their use is not changed.”

The potential hot spot in Collier, according to Gates, is Golden Gate Estates. “The area has the potential to host up to 200,000 new residents in the next 20 years. Yet, there is no commercially zoned land anywhere in Golden Gate,” Gates claims. As a result, people who live east of I-75 must now drive west toward Naples for goods and services. As new families move into that area, they are expected to demand convenient commercial centers, Gates says. New zoning will allow office parks and retail centers to service the area. When and how that happens is yet to be seen, but it will happen, he says. “People are moving here. You can’t stop them. You can’t say I’ve got mine but you’ll have to move on. The very things that attracted all of us to Southwest Florida will continue to act as a magnet for others. We are going to have to be able to house them and provide them with goods and services. That will drive commercial development in that area.”

Lee, however, is sitting on two large areas of unimproved land just waiting to be developed as housing and commercial properties. D’Alessandro agrees that residential development drives commercial development. He believes that the key to growth in Lee County will be new housing in Lehigh Acres and North Cape Coral. Those areas have cheaper land for new, lower cost homes to house the workers of the future. The potential of both areas has been enhanced by the completion of the Midpoint Memorial Bridge joining the North Cape to Lehigh via Veterans Parkway and the Colonial Boulevard corridor.

“Watch for north Cape Coral to boom in the coming years,” D’Alessandro says. Those new homes will require new services and places to shop, which will be the source of commercial building activity along the Pine Island Road corridor. Lehigh acres will see similar residential growth that attracts commercial development.

Incidental to this will be the redevelopment of central Fort Myers as workers find it convenient to commute from either Cape Coral or Lehigh to offices and facilities near Colonial between 41 and I-75.

Tom Cronin, Jr. and Allan E. Fox, commercial brokers and developers with Flordeco Inc., contend this would have happened years ago if it hadn’t been for delays in building the bridge. “Almost every tract near I-75 and Colonial Boulevard now is under contract,” Fox says. “So that’s where the next immediate big burst of commercial development will take place.”

Other than the North Cape and Lehigh Acres, commercial building in Lee, southeast of the Caloosahatchee River, will be restricted to infills and rehabs, according to D’Alessandro. Cronin has high hopes for downtown Fort Myers revitalization as a major commercial redevelopment opportunity. “But it is taking too long to rehabilitate and redevelop property,” says Cronin. “Owners are doing it on their own to save money. Taking short cuts. Doing their own general contracting. The result is that the quality is not up to what the market expects.”

Tenants for new commercial development will come from the service industries and companies making biotechnology and electronic devices. In the latter category are firms already here that manufacture communications chips and memory devices that can be shipped cheaply and quickly via air. In the former category are standard offices, restaurants and personal services. D’Alessandro points out, however, that, “70% existing commercial space is occupied by vendors and suppliers to the residential housing market.” What will happen when new residential construction starts to dry up or move to other areas? Demand will take care of the supply, says D’Alessandro. “Older homes will need remodeling services, more residents will need more personal services.”

CB Richard Ellis supports that projection in its mid-year report. Plus, there are two other major developments in Collier. First, is the campus of Ave Maria University, planned for Immokalee. Approximately 1,600 students are expected to attend in 2006. Second is the planned construction of new a 100-bed hospital, by Health Management Associates Inc., south of I-75 on the east side of Collier Boulevard.

Other hospital news concerns the closing of Southwest Regional Medical Center, an HCA operation north of Winkler and east of Evans, and the consolidation of its operations at Gulf Coast Hospital, another HCA facility south of Daniels Road, off Metro Parkway. Fox says this will pull significant tax revenue out of Fort Myers until a similar high-value use is found for the property. Fox suggests some type of congregate living campus could take advantage of the facility while redeveloping the rest. D’Alessandro is less concerned, pointing out that hospitals go where their doctors are and patient care offices have been leaving the area around Southwest Regional Medical Center in recent years. He says the shift will result in increased commercial development in and around the Metro Parkway/Daniels Road activity center.

The Lee County office market is “poised for a strong recovery,” coming off of an 18.3% vacancy rate at mid-year and an unimpressive absorption rate for new office construction, states the CB Richard Ellis report. A slowdown in new construction and a strengthening economy should allow demand to catch up with supply. Collier’s office market, which saw negative net absorption and a vacancy rate of 21.2% in the first half of 2003, is less encouraging. Any signs of improvement are anecdotal and reflect bridled optimism that ” tenants are once again looking at new locations for expansion � and existing tenants are considering relocating,” states the report.

In the retail segment, vacancy rates in Lee and Collier are stable to declining. The mid-year report showed an overall vacancy rate of 7.5% at mid-year, with Cape Coral dropping to 1.3% and North Naples declining to 1.4%. This augurs for considerable growth in retail commercial construction. Strong residential development is expected to fuel retail growth in both counties. The focus appears to be on small neighborhood centers and stand-alone retail stores, most probably near the anticipated growth areas of North Cape Coral, Lehigh acres and Golden Gate Estates or in corridors used by commuters driving to work. CB Richard Ellis projects that proposed retail developments currently on the books for stores such as Home Depot, Target, Lowe’s, Wal-Mart, Publix and others will result in more than one million square feet of retail space coming on the market within a year.

On the industrial front, the two-county corridor experienced an absorption in flex space and a small decline in occupied industrial space, states the mid-year report. Vacancy rates moved up to 19.8%, suggesting a cautious approach to new construction. But there are pockets of strength and opportunity. Growing residential markets should support new industrial facilities to meet the expanding need for construction products and services. Cape Coral is reported to have a vacancy rate of less than 1% for industrial property and the highest industrial rents in Lee County. North Naples has one of the highest rents for flex space and virtually no vacant inventory of that type of facility.

In the multi-family market, transactions have set records in the first half of the year, states the report. Occupancy rates in multi-family rental housing have remained stable-to-buoyant in Lee County with an average occupancy of 91.2%. Collier has seen a decline, especially in high-end, luxury units. This is attributed to a decline in attractive alternative investment opportunities and record low interest rates that encourage home ownership.

Lee and Collier counties, with the airport, the university and new residential development providing fuel, appear to be continuing on a growth trajectory in commercial development for years to come. In this respect, they join other communities in Southwest Florida outperforming most other areas of the country.

By William Waites

Staff Writer

http://www.review.net/opinion/detail/SW-Florida-A-Hot-Market-Real-Estate-Forecast-Lee-and-Collier/

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