No Bubble Bursting

In a recent Sarasota Herald-Tribune article by Derek Gilliam, managing broker at Premier Sotheby’s International Realty, Craig Cerreta, shared his expertise on the residential market.

Two real estate experts spoke to a group of business leaders at a Greater Sarasota Chamber of Commerce event on Thursday afternoon about trends in residential and commercial real estate.

Their verdict: Never has the real estate market shown such strength as it has over the first half of 2021, but some slowing can be expected going forward.

Commercial real estate could be in for a roller coaster ride over the next 18 months as changes in that sector typically lag behind changes in the residential market.

That’s not to say that the commercial side has been slow as the residential markets experienced unprecedented sales, said Jag Grewal, a partner at Sarasota-based Ian Black Real Estate.

Grewal spoke on the commercial real estate market while Craig Cerreta, managing broker at Premier Sotheby’s International Realty, shared his expertise on the residential market.

Cerreta said that the national market for residential has been booming. “It doesn’t matter if you’re in Sarasota or rural Michigan,” he said. “Houses have been selling at an incredible pace.” He and other national experts have attributed the buying frenzy to the COVID pandemic causing homebuyers to speed up their decision-making process, in some instances by several years.

He said the U.S. housing market is undersupplied by about 2 million homes. “This is not going to end overnight,” he said about the residential surge in pricing. “The COVID bounce and all this boom has legs on it.”

Still, he noted he bases his predictions on numbers. And some numbers indicate the residential market could be turning a corner. On July 1, there were 905 single-family properties on the market in Sarasota and Manatee counties. As of today, there were 1,055 single-family homes for sale. “The first month we have seen an uptick in inventory,” he said. “So July of 2021 is your turning point. We will look back and remember July as the turning point.” This doesn’t mean the world is falling apart he cautioned the audience. “It may mean we are headed back to a little more of a normal world,” he said.

Grewal has lived in Sarasota for 21 years. “I’ve lived here in the worst of times and the best of times,” he said. “We are definitely living in the best of times here.” He said once the news came out about the virus commercial sales ground to a halt, but after Memorial Day 2020 activity picked up and hasn’t slowed since in all segments of commercial real estate. In fact, even with the slowdown, Ian Black Real Estate did better in 2020 than it did in 2019. He said forecasts for commercial transactions are expected to increase by 20% from 2020 to 2021. The most active segment of commercial real estate is multifamily. He pointed to the Citria apartment development at 3017 Clementine Ct. off Fruitville Road. Typically, a new apartment community signs 20 to 25 new leases a month after it opens for lease. Grewal said that 300-unit apartment project did 100 in its first month. “We have never seen this growth, ever,” he said.

The second most active segment of commercial real estate is industrial. In Sarasota and Manatee counties there’s about 50 million square feet of industrial space. The vacancy rate for industrial space is at 1.5%, meaning there’s virtually no availability. “If you want to expand in industrial real estate, there is no product out there,” he said. Rent growth in industrial grew 4.7%. “Low supply is pushing up that number,” he said.

Grewal said that for the first time in his career he saw multiple bids on industrial properties in Sarasota. He did note that Manatee-based Benderson Development is building 2 million square feet of industrial space, and Amazon and other eCommerce companies have built some last-mile industrial warehouses in the area.

The office market, which Grewal notes he was concerned what would happen at the start of the pandemic in that segment, but that he does believe the office market has rebounded with “just as of late” all the sublease space put on the market being absorbed. There is about 2.5 million square feet of office space in downtown Sarasota and another 2.5 million square feet of office space in the suburban office market. Vacancy rates for office space in Sarasota is at 5%. The vacancy rate of office space was at 14% at the end of last year.

So, do the price surges and rent growth mean the market is part of a bubble? Neither expert said they believe the current market is poised to crash. “This is not 2007 or 2008,” Cerreta said. “ ... Our economy is fundamentally solid. Yes there’s political dynamics and yes there will be some bumps in the road, but we don’t have those kind of situations (that lead to the crash of 2008).”

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