Florida metros are hot! According to NAR’s commercial metro market reports for 390 markets, Florida has five of the top ten markets with the strongest overall conditions in the apartment, office, industrial, retail, and hotel markets, according to NAR’s Commercial Market Conditions Index ranking. Here are the top 10 metros with the strongest market conditions in 2021 Q2 with links to the metro market reports:
- Las Vegas
- Cape Coral Fort-Myers
- Port St. Lucie
- North Point-Sarasota-Bradenton
- West Palm-Beach-Boca Raton-Delray Beach
- Punta Gorda
- Spokane-Spokane Valley
NAR’s Commercial Market Conditions Index is based on the economic and demographic conditions of a metro area (GDP growth, employment, unemployment, wage growth, domestic migration, population growth) and commercial market indicators on net absorption, vacancy rates, rent, leasing, deliveries, ongoing construction, inventory, total sales volume, transaction price, and cap rates1. An index greater than 50 (orange areas) means conditions are stronger in 50% of the 46 indicators compared to nationally. Hover over the map areas below to see the index for a metro area.
Five Florida Metros With Strongest Commercial Conditions
Cape Coral. In 2020, 18,500 people moved into this metro area on Florida’s west coast area from other states on a net basis, second only to the Bradenton-Sarasota metro area. In the apartment market, 4,300 units were absorbed over the last 12 months, and apartments rents were up 20% y/y as of 2021 Q1 compared to 10% nationally. While major markets such as New York, San Francisco, DC, Los Angeles have lost occupancy, Cape Coral absorbed 195,000 sq. ft. of office space (about 1,300 people each occupying 150 sq. ft. of space) in the past 12 months. The demand for industrial space is high, with a net increase of 1.5 million sq. ft. of occupied space. In retail, Cape Coral absorbed a whopping 966,000 sq. ft. of space, which speaks of the robust demand for retail brick-and-mortar real estate. Hotel jobs also came back in the second quarter, with 1,400 jobs added.
Port St. Lucie. Located on Florida’s eastern coast, Port St. Lucie is another metro area where all the property sectors are outperforming the national figures. There is significant construction of industrial space going on that will add 1.85 million sq. ft. or 8% to the existing industrial inventory, the largest percent increase among the five Florida metro area with the strongest market conditions. The migration of people into the area has led to 534 more occupied apartment units in the past 12 months, and rents were up 20% year-over-year in 2021 Q2. In 2000, 11,300 people also moved to Port St. Lucie, although this is slightly lower than in Cape Coral on the western coast of Florida. In retail, 228,000 sq. ft. has also been absorbed in the past 12 months. Hotel jobs are coming back as well, with 2,000 net new jobs added compared to one year ago.
North Point-Bradenton-Sarasota. All commercial property sectors are also firing hotly in North Point-Bradenton-Sarasota, a metro area on Florida’s west coast north of Fort Myers-Cape Coral. Migration is a key driver of the demand for residential and commercial property, with 20,900 people moving into the area from other states, the largest among the five metros with the strongest commercial market conditions. The apartment market is the area’s strongest sector, with 4,672 apartment units absorbed on a net basis in the past 12 months, lifting rents by 20% as of 2021 Q2 on a year-over-year basis. There was 1.2 million sq. ft. of net occupied industrial space. There is a small net increase in office occupancy of 113,600 sq. ft., much smaller than Cape Coral-Fort Myers, a metro area South of the West coastline.
West Palm-Beach-Boca Raton-Delray Beach. Located along the eastern coastline a little north of Miami-Dade, this metro area has the highest net absorption of industrial space, with 1.9 million sq. ft. absorbed and with rents at $12.8/sq. ft. This is a bigger absorption than that in Cape Coral on the western coastline. The apartment market is also strong here, with 4,546 of net increase in apartment units in the past 12 months. The office market is making a sharp turnaround, from a 12-month negative absorption in 2021 Q1 to a positive net absorption in 2021 Q2.
Punta Gorda. This small metro area on the western coastline lies between the bigger metro areas of Cape Coral-Fort Myers in the South and North Point- Bradenton-Sarasota on the north. It is essentially a tourist and vacation destination with its many marinas and restaurants, but the demand for vacation homes and from retirees is bolstering the demand for apartment units in this area. There was a net increase in occupancy of 22 apartment units , with rents up 24%. A little over 100,000 sq. ft. of retail space was absorbed. There is construction of retail space underway and a gain of 600 new jobs in the hospitality sector.
Affordable Home Prices and Jobs Growth are Driving Migration in Florida
Driving Florida’s growth is the migration into the area. In 2020, 174,645 people moved into Florida from other states, as other states lost population, mainly New York (-203,893), California (-242,313), Illinois (-113,205), New Jersey (-42,623), Massachusetts (-32,164) , and Pennsylvania (-20,854). Florida beat out Texas ( 162,299), and Arizona (105,434), North Carolina (70,229), and South Carolina (53, 671) in attracting movers from other states.
Besides the sunny weather, migration is being driven by the still relatively affordable home prices and job creation, with the aid of a powerful tax incentives.
Relatively Affordable Home Prices
Home prices in Florida are relatively affordable compared to prices in other populous states when prices are compared on an absolute level or with how home prices compare to wages (price-to-wage income). As of August 2020, the median price of homes listed on Realtor.com in Florida was $ 395,000, which is about 7.7x the annualized average weekly wages. Compare this to the median listing price in New York ($569,999; 9.3x the annualized average weekly wages), or Washington ($ 575,000, 9x the annualized average weekly wage) , or California, the most unaffordable state ($732,000, 11x the annualized average weekly wage).
However, Florida is now more expensive than the other South region states of Texas ($349,900, 6.5x the annualized average weekly wages), North Carolina ($353,000; 7x the annualized average wage), South Carolina ($325,000; 6.8x the annualized average weekly wage) , or Georgia ($365,000; 7.4x the annualized average weekly wage). Florida can only keep up its competitiveness if housing supply increases so houses remain affordable.
Job Gains in Professional and Business Services
Florida is one a few states that have gained jobs in professional and business services since March 2020 as of July 2021, with 2,100 net new jobs, although Florida’s job gains are modest compared with other South states. Texas leads all states with highest job gains, at 44,000 net new jobs; North Carolina, with 18,400 jobs; Utah, 16,300; Tennessee, 15,900; and Georgia , with 15,400 jobs.
Tax Incentives to Attract Businesses
In addition to Florida’s strong domestic migration, another reason Florida’s commercial real estate market is booming is associated with the tax credits to attract businesses in the area. One such program is the Qualified Target Industry Tax Refund Program (QTI) which is “designed to encourage the creation of high-skill jobs and encourage the growth of corporate headquarters and other targeted industries. QTI provides a tax refund of $3,000 per new job created in Florida through the expansion of existing Florida businesses or the location of new ones. This increases to $6,000 per job within an Enterprise Zone or Rural County). A business is eligible for a $1,000 per job bonus if it pays over 150% average wage in the area, and a $2,000 per job bonus if over 200%. Projects must be supported by their community to the amount of 20% of the incentive. Another program is the Qualified Defense Contractors Tax Refund Program (QDC) – A tool to preserve and grow Florida’s high technology employment base, giving Florida companies a competitive edge as defense contractors consolidate defense contracts, acquire new contracts, or convert to commercial production. Pre-approved projects receive tax refunds of up to $5,000 per job created or saved in Florida. Projects must be supported by their community, which provides funding for 20% of the incentive.”2
Florida’s Commercial Outlook
Florida’s commercial outlook is bright because of the strong migration into the area which is driving the demand for multifamily properties, office space, and retail. The sustained growth in e-ecommerce will continue to also fuel the demand for industrial space in Florida’s coastal metro markets, both in the East and West coastlines.
However, Florida is competing with other South states in attracting jobs and people, specifically North Carolina, Georgia, Tennessee, as well as other Sun Belt states like Texas, Arizona, and New Mexico and the affordable Midwest states of Kansas and Indianapolis. Florida’s home prices are still affordable compared to the states of New York, California, Washington, and Boston, but they are less affordable compared to the other South states. Ensuring that housing remains affordable is critical to attracting businesses and people into the area, both of which are key drivers to sustaining Florida’s hot commercial real estate markets.
1 Commercial data is from CoStar®. Economic data are from the US Census Bureau, US Bureau of Labor Statistics, US Bureau of Economic Analysis.
2Financial Incentives, https://www.flgov.com/financial-incentives/