Commercial real estate holding back Florida recovery

Commercial real estate holding back Florida recovery

By JOHN KENNEDY | THE NEWS SERVICE OF FLORIDA

TALLAHASSEE — Florida home sales this month are expected to mark one solid year of steady uptick but a sharp drop in the sale of office and retail space is expected to act like an anchor on the state’s economy well into next year, analysts said Wednesday.
   
With businesses unable or unwilling to expand and Florida unemployment at a 34-year high, it’s no surprise that commercial realty is hurting. But what worries experts is that the collapse is now rivaling that seen in the single-family housing market early in 2008.

“You can’t be lulled into thinking the recession here is easing just because houses are selling,” said Tim Becker, director of the University of Florida’s Bergstrom Center for Real Estate Studies. “You’re seeing the commercial market now going through the same pain the housing industry did. And it’s not going to get better until jobs are created and businesses do better.”
   
Florida home sales in July climbed over previous year numbers for the eleventh straight month, as lower prices and foreclosures drove the deal-making.

The next round of reports due Sept. 24 are expected to also show a sales increase, Realtors say, suggesting that Florida’s troubled housing industry has finally at least stabilized.

But now it’s the commercial sector that is showing few signs of recovery.

State economists last month pegged the office and retail space demise as a factor when they trimmed Florida’s revenue forecast by $147 million for the coming year. The reduction was considered modest – compared to the revisions done earlier this year, when tax receipts were slashed by $1.1 billion.

Still, while a rise in intangibles and documentary stamp taxes was credited to the growth in Florida home sales over the past few months, commercial real estate held down what could have been an even steeper climb in tax dollars.

Commercial space is overbuilt, with many business closing and freeing even more space, analysts said. Lower rental- and sales-prices also weakened the state’s revenue take.

State economists also said that a 26 percent decline in office and retail construction spending is expected this year.

“As the quality of financing for commercial real estate tightens and loan losses mount, growth in private non-residential construction expenditures is projected to fall,” the state’s Economic and Demographic Research Office concluded in a recent report.

With the commercial decline becoming apparent, Florida lawmakers earlier this year set for the 2010 ballot a proposed constitutional amendment that would not only create a first-time homebuyers tax break that was sought by state Realtors, but also a 5 percent cap on the amount assessed valuations could rise annually on commercial property.

That’s a more lucrative break for owners and developers than the current 10 percent limit approved by voters in January 2008. With that measure on the horizon, lawmakers are considered unlikely to take any further steps in coming months to slow the commercial decline.

Becker said that the Tampa Bay-area and Southwest Florida are the regions hit hardest by the commercial slump, in part because the area lacks some of the industry diversification of such areas as South Florida and the Jacksonville-area.

Nationally, as many as two out of three commercial mortgages are estimated to face possible default, while falling prices will further dampen the sector until – like with homes – speculators and bargain-hunters return to the market, analysts said.

Amy Baker, coordinator of the Legislature’s Economic and Demographic Research Office, said Wednesday that it will likely be the latter half of 2010 before office and retail sales begin to follow home sales upward.

“We seem to be coming out of the bottom of the housing market, but commercial has lagged behind and (the decline) is going to stay with us for a while,” Baker said.