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Bergstrom Center for Real Estate Studies
Survey of Emerging Market Conditions
Q1 2010 Findings
Executive Summary & Conclusions
One quarter into a new year and we may be starting to see a few rays of sunshine with the real estate market. Results of the first quarter survey indicate that the real estate market in Florida has hit bottom and is in the process of stabilizing across most property types. Before we get too optimistic, however, we should note that in weather terms we would probably call it mostly cloudy with a few breaks in the clouds. That seems fitting as we enter the spring and summer months in the Sunshine State. In fact, most of the respondents of the first quarter survey indicate that the market probably won't get any worse. What few will tell you is that we are getting better. One respondent stated that if anything "we will get less bad." So goes the sentiment of real estate professionals in this state.
Unemployment continues to be one of the darkest clouds as the state edged upward in the first quarter to 12.3% unemployment according to the Bureau of Labor Statistics. Since the start of 2007 Florida has lost over 880,000 jobs. However, that one break in the clouds is the outlook by most economists in the state that the unemployment picture will get less bad in the next few quarters with a potential for job growth by the end of the year. A small but much needed ray of sunlight. Unfortunately, even under the most optimistic assumptions it will take three to four years of growth to get back to where we started at the end of 2006.
Another dark cloud in the state is the lack of debt capital. Large commercial banks continue to be reluctant to lend on real estate as pressure from regulators and poor fundamentals keep them on the sidelines. This along with depressed values is making it very difficult to refinance mortgages coming due even on performing assets. Fortunately, there are a few breaks in the clouds in the capital outlook. Our respondents noted that private capital, both foreign and domestic is continuing to enter the state in search of quality deals. As banks start to deal with their problem assets, as respondents indicate they are, more deals will come to market and the capital will be fighting for the best of those assets. Additionally, life companies have increased their appetite for Florida real estate and newly formed or previously conservative community banks are being aggressive in providing capital.
Certainly, only time will tell if we have truly turned a corner and have started on the long rough road up the growth curve. But a few rays of sunshine are better than none.
Highlights
- The outlook for occupancy and rental rates indicates that our respondents expect stabilization across most property types.
- Cap rates have declined modestly over most property types.
- Required yields have declined over most property types.
- The outlook for investment remains mixed for all property types.
- Respondents' own business outlook continues to improve across all professions in the industry.
Orlando Area
- Cap rates in Orlando are, on average, slightly lower (0.01 percentage points) than that of the state, and range from 8.3% (Apartments) to 12.0% (Condo Conversions).
- Cap rates have increased over the past quarter, with the largest changes being seen in Condo Conversion (+1.86% change) and Warehouse (+0.24% change).
- Cap rates are expected to stabilize for all property types over the next quarter.
- Required yields for Orlando are, on average, lower than that of the state, 12.55% compared to 12.67% statewide.
- Required yields are highest for Condo Conversion at 17.7% and lowest for Free Standing Retail at 9.7%.
- Required yields have decreased for all but 1 property type the past quarter, the largest being Condo Conversions (-2.51%) and Office: Class B (-2.49%).
- The investment outlook is mixed across most property types. The strongest indication of a positive outlook occurs for Apartments and the strongest indication of a negative outlook occurs for Condo Conversion.
- The outlook for Land Development is neutral to negative across land classifications. It appears that the most negative outlook occurs for Land with without Entitlements.
- Occupancy rates are expected to stabilize across the majority of property types. Respondents indicate that occupancy should increase in Apartments.
- Rental rates are expected to increase slower than inflation for all property types.
- Future absorption rates are expected to be neutral for Single Family Development and Condominium Development.
- Future price increases are expected to occur slower than inflation in both Single Family and Condominium Development.
See the complete Survey at: Warrington College of Business Administration, University of Florida
The Survey of Emerging Market Conditions is the only Florida-centered survey of leaders and professional advisors in the real estate industry. It analyzes prospective data to produce extensive forecasting information pertinent to 37 of the state's 67 counties. The survey is administered by the Bergstrom Center for Real Estate Studies at the University of Florida.
