THE STATUS OF THE REAL ESTATE MARKET
Mike Ryals, Senior Vice President
Commercial and Land Division
Bosshardt Realty Services, Inc.
Someone recently asked for my thoughts on the status of the current real estate market. After contemplating how to best to answer this broad question and considering the recent (past two years) seemingly “out of control” pace of real estate, I came up with the following response;
- Anyone involved in real estate on a day-to-day basis knows how vibrant the industry has been for the last couple of years. While residential real estate (especially the condominium sector) seems to be slowing somewhat and returning to a more normal pace, vacant land and commercial real estate continues to be strong. This continuing sunny side of the real estate market could be impacted by rising interest rates, increasing construction costs and a general slowing of the residential market and/or the overall economy. But on the other hand, these same factors (rising interest rates and construction costs) should help control, and/or limit, speculative development, which only serves to improve the basic fundamentals of the real estate as an investment.
Several factors, including the stock market crises earlier this decade and the very low and favorable interest rates of recent years, have driven many buyers into the vacant land/commercial real estate market as investors. This increase in demand has resultingly caused a significant depletion of inventory. This diminished inventory combined with the continuing strong demand for real estate has resulted in a significant imbalance of supply versus demand. The result is that demand continues to outpace supply in the vacant land and commercial real estate sectors, which means we should continue to see positive growth and appreciation in these markets.
The question is “will vacant land and commercial real estate follow the residential trend and slow in the near future, or will it continue at its current pace?” My opinion is that while it may follow the residential trend somewhat, vacant land and commercial real estate will continue to be strong for the following reasons:
- Lack of inventory- Gainesville has recently reached a point of public recognition that has been unprecedented in the past. I am not sure if this is due to us crossing a population threshold, being influenced by growth of/at the University of Florida or by something as simple as Gator Basketball’s recent accomplishments. Regardless of the reason, Gainesville is now being looked at, and considered, by numerous regional and/or national companies and/or developers. This will obviously continue to fuel the local economy and help drive demand for vacant land and commercial real estate.
- Sandwich migration will also continue to fuel population growth in North Central Florida and will resultingly help drive the local economy. Sandwich migration (a term I made up) is a combination of the continuing in-migration of out-of-state residents moving to Florida combined with reverse migration, which is the movement of South Florida residents to North Florida. Thus North Florida is currently being sandwiched by population movement from both the South and North.
- The fact that the baby-boom generation (a very large segment of today’s overall population and demographic mix) is approaching retirement age and Florida is a very attractive retirement location (due to no state income tax and good climate) will also help drive the North Florida economy for many years.
All of these items combined suggest that vacant land and commercial real estate will continue to be a great investment for many years to come. The primary difficulty with investing in these sectors of the market is limited, or lack of, available inventory. There just aren’t enough properties available to satisfy the demand, or appetite of the buying side of the marketplace.
The bottom line of all of this is that it is a great time to be a seller, as the limited inventory situation continues to cause buyers to pay premium prices, and even though vacant land and commercial real estate may not grow at the almost exponential pace we have seen for the next few years, it will continue to be a good investment for many years to come.
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