This unusually fast upward trend in prices was initiated as financial institutions loosened their lending standards creating easy access to money and invented creative financing arrangement
s. During this time period, the federal government kept interest rates unusually low in an attempt to prevent a prolonged recession after the attacks of September 11, 2001. This situation created by the federal reserve and financial institutions kept the cost of borrowing money low. Meanwhile, opportunistic real estate speculators entered the market and purchased commercial units with the intention to re-sell them for higher prices immediately after purchasing. This widespread speculation and insatiable demand resulted in developers selling out their projects before they were complete and purchasing more land to do it again. This caused land prices to spike from $9.00 per square foot to $22.00 per square foot at the apex. Small condo warehouse sale prices went from $85.00 per square foot in 2000 to $160.00 per square foot in 2006 (an 88% increase.) This was, in essense, the "get rich quick" method of property investment instead of the tried and true long term approach of buy, rent and hold.Since 2006 we have seen a substantial correction in both rental and sales prices and I believe we are at or very near a bottom in warehouse prices. If you look at the warehouse sale prices back in 2000 and increased them an average of 3% each year (historical appreciation) for 9 years you would arrive at a value of $111.00 per square foot. This is approximately where our prices are today.
We have seen a substantial increase in warehouse and office rentals since the beginning of 2009 (an average of 1 lease per business day from Jan-June 09) and as the inventory begins to shrink we should see an uptick in rental rates. As the rental rates increase it will attaract more long term investors into the market and will be a stablizing force on values. In addition, prices have now come down to a point where many small businesses can afford them and as credit loosens up, sales should pick up pace.
The office market remains more oversupplied and unpredictable at this point than the warehouse market. However, we have seen aquisitions of entire floors of condo office buildings by large companies which has eliminated some of the over supply in the condo office market. As the supply is drawn down, the office prices should begin to increase again as there is little supply coming onto the market for at least 2 more years.
An evaluation of the big picture is an integral part of any discussion of current and future real estate values. The Tamiami Airport Business District has seen a tremendous increase in residents in the last 9 years and 4 new shopping centers. One center is of regional impact that attracts shoppers from surrounding communities. Our commercial neighborhood will soon be able to be accessed by a new connection to the 826 expressway and possibly the Florida Turnpike. The Tamiami airport, already one of the busiest private executive airports in the country, is expanding a runway to allow for more flights and subsequently more commerce. The amount of buildable land has decreased substantially in the last decade to about 40 total acres as we have reached the Urban Development Boundary. Lastly, this region should be one of the first to feel a lasting an economic recovery as a result of its unique business ties to Latin America and the Carribbean and an everpresent tourism industry. Short term economic cycles are inevitable, but wise investments in real estate can still provide a stable return in the long run. Please email me for more information. Steve@sepm.net.
