Last year, predictions of gloom and doom were common when it came to the office market. And while some uncertainty remains about how the COVID-19 pandemic will ultimately affect the way companies use office space, things right now aren’t looking as bad in Southwest Florida as many people feared.
In fact, Brian Alford, director of Florida market analytics for CoStar Group, thinks the area is looking pretty good these days. “Southwest Florida is one of only a couple of markets in the entire country that have improved over the last year,” he says.
The three-county area had an average vacancy rate of 6.9% in early May (down from 7.6% at the start of the fourth quarter of 2020), and it had seen positive absorption of 182,000 square feet of office space to that point in the second quarter of 2021, building off the positive momentum of the previous two quarters. But Alford is even more excited about what’s going on in the Naples office market.
That’s a market that had been struggling even before the pandemic. Alford reported that prior to the fourth quarter of 2020, the Naples office sector had six out of seven straight quarters with negative net office absorption, which means more office space had been vacated than had been leased.
But things are beginning to move in the right direction. The Naples market, he said, saw its average vacancy rate compress 30 basis points between fall 2020 and March 2021. (Ten basis points equals 0.1%.)
“Naples is really at a tipping point and is starting to improve,” says Alford.
One reason for that, he said, is that the employment sectors that typically use office space in the Naples area—such as professional services and financial management—haven’t been as negatively affected by the pandemic as retail, hospitality and other sectors. He’s also seen some notable leases get signed this year, pointing to O’Connell Behavioral Services and Morgan & Morgan, which both leased more than 11,000 square feet of office space in the Naples market in 2021.
“It’s been interesting, because what we’ve seen [in Southwest Florida] has not necessarily been what we expected to see,” says Justin Thibaut, president of Fort Myers–based commercial real estate firm LSI Companies. “My thought is that we’re nearing equilibrium right now, and I think that we will probably stay close to equilibrium.”
Thibaut said that LSI has been getting inquiries from businesses located outside the state about office properties the company has listed for sale, another factor that’s helping to drive the positive trends. “We’re seeing a lot of growth within existing companies in Lee and Collier counties, but some of the land deals we’re putting together right now are for users not in the market currently,” he says. “I think we’re in a good position, given that there’s so much interest in Southwest Florida. And I think now more than ever, if companies were on the fence about thinking about making a move, more are really thinking hard about that now.”
The new Venture X Naples coworking space—which includes everything from private offices to shared desks— began offering memberships in April 2021 and was already about 50% sold out by May. It’s also hearing from folks located outside the area, something that hadn’t been as prevalent in its previous Mercato location.
“We’re getting some real interest from people from up north moving down here,” says Brett Diamond, one of the owners of Venture X Naples. He’s hearing from people who are now allowed to work remotely indefinitely and are choosing to move to a place like Naples, and they’re sometimes getting stipends from their employers to rent office space of some kind.
Venture X Naples conceived of the new space before the pandemic hit, but its decision to include more private offices than at its old location has proved fortuitous. “That definitely ended up working out in our favor,” says Diamond.
Randal Mercer, founding partner of local commercial real estate and property management firm CRE Consultants, is also feeling pretty positive about the Lee and Collier county office markets. “I’m seeing lease renewals, which is a very strong indicator of the market,” he says. “Lease renewals last year were very short, like one year or two years. Now we’re seeing lease renewals coming back to the three- and five-year range, if not longer.
“The office market in both counties is very stable,” he continues. “There are still some unknowns, but I think all of that is going to be resolved by mid-year. I’m very optimistic for 2021.”