Monday, April 04, 2005

Warehouse Demand Soaring in Saeasota

Warehouse demand soaring By Michael Braga
(From the Sarasota Herald Tribune)

Dozens of them are emerging from the ground all over Southwest Florida -- sturdy structures of metal and concrete that house the region's growing businesses and their supplies.They are the product of a construction boom the likes of which the region has never seen.

More than 1 million square feet of commercial and industrial warehouse space was added in Sarasota and Manatee counties last year -- 22 percent more than in 2003.Another 64,000 square feet went up in Charlotte County, 44 percent more than the year before."I've never seen anything like it," said Jim Walter, a commercial real estate specialist with Richardson Kleiber Walter. "Space is selling as soon as construction begins."The combination of low interest rates, easy access to credit and a feverish desire to own space is whipping businesses of all sizes into a feeding frenzy."

As land continues to be purchased and taken off the market there's a feeling among business owners that they have to jump on something fast," said Jon Kleiber, another of Walter's triad. "The urgency is now." But the frenzy is just causing land to disappear that much faster and prices to escalate.Commercial and industrial space that sold for $90 per square foot a year ago is selling for as much as $125 today.

Some builders and Realtors see no end to the boom in sight. Others caution that rapidly rising land values, escalating construction costs and the threat of higher interest rates will soon cool the passion. Already there are indications of a slowdown ahead. Just drive around the older industrial parks in the Whitfield Avenue area of south Manatee and you'll see dozens of empty buildings with "for lease" signs outside. The pent-up demand to own space in brand new buildings has caused the warehouse rental market to languish. But as interest rates rise, the pool of eligible buyers will thin and leasing will begin to look appealing again."

At some point -- probably when interest rates pass 8.5 percent -- it will become more attractive to lease than to buy," said Carl Wise, of Sarasota's Preferred Commercial. "But we're not there yet."Racing for spaceBusiness owners throughout the region are still hungry for land and buildings.

Take Bob Arello.The founder of HydroGrass Technologies, a Sarasota company that provides a variety of products to keep land from eroding, moved into a 6,500-square-foot building in the Sarasota International Trade Center off Fruitville Road in December. "I was leasing a building in Bradenton off U.S. 301, but I felt like I was throwing good money away," Arello said. "It thought it made more sense to buy property and get the appreciation."

Robert Gocinski, executive vice president of Nationwide Chemical Coating Manufacturers, felt the same. Gocinski's company is building a 15,000-square-foot warehouse off U.S. 301 in south Manatee for its 14 employees and the paint they make and distribute. "We want to get in as soon as possible because interest rates are popping up," Gocinski said. "We can't lock in until construction is finished."

The structures being built by Arello and Gocinski are larger than those being bought by the average Southwest Florida company. Most are snatching industrial condominiums, 1,500- to 2,000-square-foot spaces that have been carved from larger buildings.

"Our economy is primarily made up small businesses and this is the kind of product they want," said Neil McCurry, president of People's Community Bank in Sarasota. Banks love to lend money to both the developers of these buildings and the companies that ultimately occupy them.

Demand remains strong. Loyd Robbins, one of the earliest proponents of industrial condo space in the area, maintains that demand is strong in spite of the fact that so many industrial condominiums are being built. Robbins is marketing that product in 15 business parks in Sarasota and Manatee counties, and just sold all 12 units in 25,000-square-foot building on McIntosh Road. He filled two smaller buildings in the International Trade Center and most of a 32,000-square-foot building under construction in the Sawyer Oaks Professional Park has been spoken for. "That space is being bought up by end users," Robbins said. "These people are anxious to move in."

The same phenomenon is occurring in Lakewood Ranch, says John Swart, vice president of commercial sales for Schroeder-Manatee Ranch. About 198,000 square feet of commercial and industrial warehouse space will be completed in 2005, up from only 15,000 square feet last year, Swart said. "Most of it is pre-sold or pre-leased."

Charles H. Wilson, a Sarasota developer and builder of commercial and industrial warehouse space, says his company has never been busier. Like Robbins and builders at Lakewood Ranch, he's been constructing industrial condos like mad during the past few years, but he believes the days of frenzied condo buying are numbered. He and his partners are now constructing buildings for lease rather than for sale. "We're betting the current trend will reverse itself," Wilson said. "As interest rates move up, there will be fewer purchases and the lease market will firm."

On with the boom. In some areas, the sale prices of commercial and industrial warehouse space have already pushed past lease prices, and it's causing some business owners to think twice about buying. A company that buys 2,000 square feet of space for around $250,000 will end up paying monthly interest rates of $9 to $11 per square foot, Wise says. That compares to lease rates of $7.50 to $9.50 per square foot.But you still have to take real estate appreciation into account. Land values have doubled during the past few years, and because of the chronic shortage of land zoned commercial, prices are likely to keep rising at a rapid clip. "I'm still telling clients to buy," Wise said. "As long as they have the disposable cash it makes sense. But if they need the money to buy more trucks or pay down debt, they should think about leasing."

Meanwhile, Orlando economist Hank Fishkind is predicting Sarasota and Manatee counties will add slightly less commercial and industrial warehouse space this year -- but still more than 1 million square feet. A slowdown might be just what government officials need to figure out what comes next, says Walter of Richardson Kleiber Walter. "We're running out of land that's zoned industrial, especially in areas south of Clark Road," Walter said. "It's scary. Unless we do something, our economic growth will slow and our cost of living will rise."

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