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Commercial real estate lags improving housing market

TAMPA — When builders broke ground this month on an office park in the Tampa suburbs, perhaps the first speculative project this area has seen in half a decade, one developer called it a "good sign that we've turned the corner on the recession."

But don't expect office parks to bloom at the same frenzied speed as new homes. Agents and builders said Tampa Bay's commercial construction remains a wasteland, stalled by lack of business, stung by vacancies and strapped for development cash.

In the wake of the housing bust, as homes fly off the market and buyers battle over thin inventories, it's the area's strip malls and office centers that remain in price-sinking oversupply.

Coupled with still-simmering worries over unemployment, weak wages and lagging consumer confidence, agents said the demand for new commercial space has crumbled.

Builders in March saw contracts for future home and apartment construction in Tampa Bay skyrocket 80 percent over last March, to $338 million, McGraw-Hill Construction data show.

Meanwhile, contracts for construction on nearly everything else — storefronts, offices, schools, hotels, religious halls, manufacturing plants and recreational centers — plummeted 80 percent last month, to just over $15 million.

Tampa Bay's commercial marketplace is "still suffering from the downturn in the economy, with more foreclosures to come," said Tim Watson, who heads the commercial division of RE/MAX ACR Elite Group, Inc.

"If you don't have the jobs for people and they're not making money, they're not going out for dinner as much, they're not getting their hair cut as much — they're just not going out to spend money as much as they used to," he said. "That affects everyone."

Sprawling apartment projects and newly revived subdivisions helped local construction jobs grow 6 percent over the past year, the Associated General Contractors of America said last week.

But nearly all of the cranes and crews working commercial these days are building sparsely and for single tenants: Wawas, Walmarts, banks and dollar stores, where sales are steady or company leaders are seeking new markets.

Commercial developers aren't turning dirt, or even winning lenders' confidence to invest in new projects, because so much empty space remains cheap and up for grabs. But even with property values and lease rates at staggering lows, property owners who cater to businesses struggle to sign new leases.

"Landlords are bending over backwards and doing deals that make no economic sense" to keep tenants in shopping centers, said Jonathan Graber, an investment associate at Tampa commercial real estate firm Franklin Street.

Empty storefronts tend to siphon traffic from neighboring businesses and can trigger disastrous domino effects, Graber added. At one 15,000-square-foot strip center, he said, the landlord "can't give space away."

Core markets and urban centers tend to fare better than outlying enclaves like New Tampa and southeast Hillsborough County, which lack the density of residents and shoppers that businesses need to survive.

But many developments, like regional malls, suburban offices and big-box-laden "power centers," remain unpopular no matter where they're built, as retailers and office leaders downsize because of slowing business, online shopping or oversaturated markets.

When retailers do move, agents said, they tend to play musical chairs, moving in where another company has downsized or gone out of business and cannibalizing their last locale.

Retailers, as the saying goes, follow "rooftops," blossoming most often among dense traffic and neighborhoods. But they follow in another way as well, by tending to lag economic progress in housing. In the last recession, agents saw commercial property prices sink only a few months after the broader housing market's bust.

That has some agents and builders optimistic that resurgent home prices and upticks in employment could inject needed business into shops, restaurants and entertainment.

Small-business owners and franchisees could turn once again to home equity for startup loans. And tightfisted lenders could see better chances in commercial building as developers fix up aging strip centers or unveil plans for new growth.

"We expect we'll be busy into the fall, but we try not to look too far ahead," said Mark Weaver, vice president of Tampa builder Ed Taylor Construction. "You never know what's going to happen."

Contact Drew Harwell at (727) 893-8252 or dharwell@tampabay.com.

Commercial real estate lags improving housing market 05/18/13 [Last modified: Friday, May 17, 2013 6:26pm]
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