Office Supplies

When Tampa-based Sponsler, Bennett, Jacobs & Cristal sought to purchase an office in Fort Myers, the 60-employee law firm didn't anticipate the challenge it faced. "In the downtown Fort Myers area, there was nothing that met our needs," says partner Rob Bennett.

The insurance defense litigation firm set out to buy a building with 6,000 to 10,000 square feet that it could lease out and occupy, with room for its own growth. It ended up leasing 1,500 square feet-enough only for its immediate needs-on Metro Parkway, some 15 minutes from downtown, where the judge of compensation claims presides. "It was unbelievable. There was no selection whatsoever," says Bennett, "despite the very patient efforts of our realtors."

The building boom visible all over Southwest Florida belies a reality quickly seen by companies expanding or relocating here: Office space is in short supply. With the robust economy, that poses serious challenges for growing businesses as well as commercial real estate brokers and agents and economic development officials.

"Right now there is a shortage in the larger, contiguous space," says Michael Frye, owner of Re/Max Realty Group, who helped Sponsler, Bennett eventually find digs in the Metro Park Exec-utive Center. In Lee County, space of 7,000 square feet and up is "getting very difficult to find for Class A and Class B," says Frye. (Typical Class-A space would be a five-story building with a master lobby; Class B might be a single-story, drive-up office.) Remove a few of the large bank buildings from the mix, he adds, and space becomes scarce. "I'm not saying that there is no space available out there," he says, "but it's limited to certain clients' needs."

According to CB Richard Ellis's semiannual inventory of the commercial real estate market in Collier and Lee counties, the vacancy rate in each of the region's submarkets has decreased since the end of 2003 through January 2005. In Lee County, office vacancy dropped from 18.8 percent to 10.2 percent in that period. "In the next six months, you will see vacancy decrease even more, and you will see rents go up," says Randal L. Mercer, partner at CB Richard Ellis in Fort Myers. In Collier County, the vacancy rate fell from 19.9 percent at the end of 2003 to 17.8 percent for mid-year 2004. With significant second-half activity in that market, Mercer expects Collier's vacancy rate to go down as well. And when that number hits about 10 percent, developers typically feel it's a safe time to build more.

Cause and Effect

Experts cite numerous factors contributing to the lean office market. According to Mercer, there hadn't been much new Class A building in the last five years, so when space is absorbed, there's little excess supply to fill the void. Bob Koenig, vice president and Lee County area manager of Kraft Construction, notes that Lee County's purchase of the SunTrust Bank building in downtown Fort Myers took a big chunk of space off the market there.

The famously growing city of Cape Coral faces its own hurdles. Vacancy has remained very low-around 5 percent for the past five years, according to Mercer, and now it has reached 0 percent. "We just don't have any slack capacity," says Mike Jackson, the city's economic development director. One obstacle in the Cape, where only 8 percent of the land is zoned for commercial and industrial use, is assembling property. Another: There's simply more space available in other parts of the region, so prospective tenants often don't consider Cape Coral first.

Jackson sees his job as persuading investors to build speculative office space. "If you don't have a facility for a company to move into, eight out of 10 times you will not attract the company," he says. He cites the Cape's large commuter population as a built-in-and growing-labor market, and he highlights the city's impact-fee deferrals. "It's one way to make investors feel more comfortable," he says.

Jackson illustrates the unmet need for commercial development with the example of Nova Southeastern Uni-versity (NSU), which sought 8,000 to 10,000 square feet in Cape Coral. When that couldn't be found, the city stepped in to develop a six-acre office park across from City Hall, where more than 10,000 square feet in modular units will be rented at market rate by NSU and several other tenants. "We're doing it because the market's not," says Jackson.

WHERE NEXT?

"Typically, developers tend to build more product when the vacancy rate is 10 percent or less," says Mercer. "You're going to see an accelerated rate of new product coming on line." Koenig, of Kraft Construction, says, "Currently, in [Kraft's] Lee County office, a growing percentage of inquiries on future jobs is reflecting an interest in office space."

Mercer also sees plenty of build-to-suit opportunities for alert companies. "You can have something designed and built very, very nicely if you're looking forward," he says.

In Fort Myers, experts point to Daniels Parkway and south, accessible to north-south corridors and the airport, as the targets for office development. "You're going to see a lot of office parks and retail centers," says Frye. "Alico Road is [becoming] six lanes, and Metro Parkway is being extended to Alico and [U.S.] 41." Farther out, Mercer expects the next shift of business to be east of Interstate 75 on Treeline Avenue. Also, redevelopment in downtown Fort Myers will bring some office space on line.

Both Frye and Mercer are enthusiastic about the Bonita Springs and Estero markets. Right now there is "quite a bit of space available," says Frye. Both point to McGarvey Development Company's Riverview Corporate Cen-ter in Bonita as an example.

In Cape Coral, where projects on tap include downtown-redevelopment initiatives, there will be new inventory for the first time in years.

In Collier County, Mercer notes a shift north to the Immokalee Road and Pine Ridge Road areas, and east to Rattlesnake Hammock Road. Here, as elsewhere, a rule of thumb applies: commercial development tends to follow residential growth. "The 41 corridor is virtually built out, the downtown is virtually built out," says Mercer. "There's nowhere to go but east or northeast."