20 April 2009 - 16:29Where is the light?

In a time of increasing frustration and turmoil the Tampa Bay area real estate market offers few clues to incite an outbreak of hope (with confidence). In fact, in addition to the ongoing residential slide other analysts believe that the commercial real estate market has yet to suffer a similar fate. There is some good news, I feel that the commercial market is not overbuilt in every property type as there were not that many new starts of office buildings and industrial (broad category of industrial) buildings. This is consistent with what we call demand generators; for office space and industrial space the demand for new space is directly related to job growth in the relevant categories. However, retail space and residential growth are another matter entirely as the adage says “retail follows rooftops”. However there is serious overbuilding when retail leads rooftops as has been the case from 2003-2007/8. The underlying premise of one use following the other is valid as part of the reason new residential units are built and occupied is the presence or promise of retail services, especially the standard grocery store anchored neighborhood shopping center. Further exacerbating the problem is that so much of new housing stock was a false path not seen until later where flipper-investor driven demand rather than users of housing was driving supply creation. So it is not unreasonable to expect there to be a growing parade of retail failures compounded by the lingering recession and rising joblessness. In all of that bad news, the neighborhood shopping center stands the best chance of surviving because of the nature of the shopping for essential goods and services. It was already clear that there were too many malls and then too many mall killers in the ubiquitous “lifestyle centers”.

So, where is the light? Any decision made regarding commercial real estate or for that matter the residential development sector must be made on more than hope and desperation. Smart marketing always plays a role but this is more about relying on realistic timing forecasts built as solidly as possible on good market analysis study and the use of the six-steps of market analysis detailed on my websites. So much depends (and it always has) on properly defining the product at the outset and coldly assessing the competitive attributes. The product or project that most closely possesses and maximizes efficienctly  market standards will emerge sooner from these troubled times and market turmoil. It is a fact that during this crazy run-up in price superior products sold or rented first, and as always the second and third tiers followed. As the market demonstrated an appetite for more and more, the secondary location and product became a pseudo-primary property and each level in turn moved up. As the tide goes out, and gathers to return, the pecking order is reordered and “the last shall be last”. It is also important to know the competitive market area and a realistic assessment of the estimated market share. From within that market area (and it’s different for most different properties and variations) demand can be forcast and competitive supply can be counted.

It’s not complicated in concept, absorption of supply will eventually and gradually result in a renewal of reasonable demand, the burning question is when!