06-04-2007, 10:23 PM
North Port: Gloom town
By MICHAEL BRAGA
michael.braga@heraldtribune.com
NORTH PORT -- Do not blame developers for bringing hundreds of thousands of square feet of office space to market at the worst possible moment.
Three years ago, every indicator was persuading them that Sarasota County's southernmost city was in desperate need.
The 10-mile-wide storm dubbed Hurricane Charley had just destroyed Port Charlotte and Punta Gorda, causing suddenly shelterless businesses to descend on North Port just as roofing, plumbing and electrical contractors were arriving from all over the state to help Charlotte County rebuild.
Coincidentally, Southwest Florida's real estate boom was kicking into high gear, which caused a rush on office space by home builders, mortgage brokers, real estate agents, and insurance and title agents, who were looking to profit from North Port's exponential growth.
With demand for office space high and lease rates shooting upward, developers announced plans for more than 420,000 square feet of office space, almost quadrupling North Port's existing supply.
Though developers have pulled back from some of that construction, many of the buildings they promised are now up and ready for occupants -- or will be by the end of the year.
But market conditions could not be more dramatically different.
Demand for office space began dropping as Charlotte County businesses headed back to salvaged buildings down south and hurricane crews from around the state completed their repair work.
But it was the collapse of North Port's home building industry that brought the office market to a standstill.
Suddenly, developers found it impossible to fill their new buildings, and lease rates plummeted.
"Before Hurricane Charley, you could lease office space for $8.50 to $10 per square foot," said Chad Maxwell, a North Port commercial real estate agent. "Six to eight months later, lease rates were up to $21 per square foot. But we are now re-leasing that same space for $15 per square foot."
The problem, Maxwell said, is that some developers made their decisions to build when lease rates were high and are now having to rent out that space at 30 percent discounts.
"The unfortunate reality is that some people are going to lose money. But the buildings will eventually fill."
Reasons to invest
Peter Shipps, a Venice home builder who moved to North Port five years ago to participate in the city's unprecedented building boom, was one of the developers who took the biggest gamble on the North Port office market.
"When we started, we had people coming in here all the time telling us they couldn't find office space," Shipps said. "One of them was a young doctor, who came in with his wife and daughter in a stroller. They ended up moving to Tallahassee because they couldn't find space, and that got us thinking."
The result is that Shipps pushed through plans to build five Class-A office buildings, totaling more than 70,000 square feet, on Tamiami Trail.
Two of those buildings in his Pan-American Professional Center, representing about 30,000 square feet of space, are now almost complete. But Shipps has temporarily shelved plans to build the other three.
A large banner hangs from the third floor of his largest building, boasting that prime space in the buildings under construction is still available.
Despite the difficult market conditions, Shipps remains optimistic. He points out that his buildings are the highest quality office buildings that have ever been built in North Port. He is convinced that upscale businesses will be attracted to them for that reason.
"You can't hang your head too low," said Shipps, who has been in the construction business since 1976. "Real estate markets are cyclical. A project like this can't just be turned off with a switch. We'll just have to wait until the cycle comes around again."
Joseph Celico, a home builder who just completed a 10,000-square-foot office building at Tamiami Trail and Toledo Blade Boulevard, is similarly philosophical.
"We thought this place would fill up during construction," Celico said. "But people didn't want to wait. They wanted space right away."
As a result, Celico's building does not have any tenants yet. But with lease rates starting at $16 per square foot, Celico believes tenants will recognize the value he is offering.
"You can't be greedy in a market like this," Celico said. "It may take a little more time and effort to get the right people out here, but I don't think we need to be too concerned."
Half empty
It is difficult to calculate exactly how much office space has been built in North Port in the past two years and how much is vacant.
That is because some of the recently constructed complexes, such as North Port Commons and Sumter Crossing, can be used for either retail or office tenants. In turn, some developers have halted their construction plans.
Figures presented by the the Economic Development Corp. of Sarasota County point to an office vacancy rate in North Port of about 50 percent, amounting to about 180,000 square feet of space.
Based on the city's historic annual absorption rate of roughly 22,400 square feet, that space will take eight years to fill.
"It's not a pretty picture, especially given current market conditions," said George Hugh, a Venice real estate agent and foreclosure specialist. "Eight years is a long time for developers to keep feeding money to their banks."
Huhn added that the situation in North Port proves that home builders were not the only speculators during the boom.
"You've got to wonder whether developers and bankers -- in their rush to develop in 2004 and 2005 -- were doing proper due diligence," Huhn said.
Benderson Development Group's office park on Toledo Blade near Interstate 75 is a case in point: The company's six office buildings, totaling 40,000 square feet of space, stand empty.
"I'm sure they saw rooftops being built and they didn't count on them being sold to speculators," Huhn said. "You've basically got a situation down there in which half the homes are empty."
Nevertheless, the consensus among North Port's commercial real estate agents and government officials is that the city's problem is one of temporary oversupply that will be rectified as soon as North Port's home builders start cranking again.
"Commercial development is way behind demand in North Port as it is," said Paul Schouten, a commercial real estate agent with Michael Saunders & Co. in Englewood. "We may go through a period of slight oversupply. But then we'll go into another growth phase.
By MICHAEL BRAGA
michael.braga@heraldtribune.com
NORTH PORT -- Do not blame developers for bringing hundreds of thousands of square feet of office space to market at the worst possible moment.
Three years ago, every indicator was persuading them that Sarasota County's southernmost city was in desperate need.
The 10-mile-wide storm dubbed Hurricane Charley had just destroyed Port Charlotte and Punta Gorda, causing suddenly shelterless businesses to descend on North Port just as roofing, plumbing and electrical contractors were arriving from all over the state to help Charlotte County rebuild.
Coincidentally, Southwest Florida's real estate boom was kicking into high gear, which caused a rush on office space by home builders, mortgage brokers, real estate agents, and insurance and title agents, who were looking to profit from North Port's exponential growth.
With demand for office space high and lease rates shooting upward, developers announced plans for more than 420,000 square feet of office space, almost quadrupling North Port's existing supply.
Though developers have pulled back from some of that construction, many of the buildings they promised are now up and ready for occupants -- or will be by the end of the year.
But market conditions could not be more dramatically different.
Demand for office space began dropping as Charlotte County businesses headed back to salvaged buildings down south and hurricane crews from around the state completed their repair work.
But it was the collapse of North Port's home building industry that brought the office market to a standstill.
Suddenly, developers found it impossible to fill their new buildings, and lease rates plummeted.
"Before Hurricane Charley, you could lease office space for $8.50 to $10 per square foot," said Chad Maxwell, a North Port commercial real estate agent. "Six to eight months later, lease rates were up to $21 per square foot. But we are now re-leasing that same space for $15 per square foot."
The problem, Maxwell said, is that some developers made their decisions to build when lease rates were high and are now having to rent out that space at 30 percent discounts.
"The unfortunate reality is that some people are going to lose money. But the buildings will eventually fill."
Reasons to invest
Peter Shipps, a Venice home builder who moved to North Port five years ago to participate in the city's unprecedented building boom, was one of the developers who took the biggest gamble on the North Port office market.
"When we started, we had people coming in here all the time telling us they couldn't find office space," Shipps said. "One of them was a young doctor, who came in with his wife and daughter in a stroller. They ended up moving to Tallahassee because they couldn't find space, and that got us thinking."
The result is that Shipps pushed through plans to build five Class-A office buildings, totaling more than 70,000 square feet, on Tamiami Trail.
Two of those buildings in his Pan-American Professional Center, representing about 30,000 square feet of space, are now almost complete. But Shipps has temporarily shelved plans to build the other three.
A large banner hangs from the third floor of his largest building, boasting that prime space in the buildings under construction is still available.
Despite the difficult market conditions, Shipps remains optimistic. He points out that his buildings are the highest quality office buildings that have ever been built in North Port. He is convinced that upscale businesses will be attracted to them for that reason.
"You can't hang your head too low," said Shipps, who has been in the construction business since 1976. "Real estate markets are cyclical. A project like this can't just be turned off with a switch. We'll just have to wait until the cycle comes around again."
Joseph Celico, a home builder who just completed a 10,000-square-foot office building at Tamiami Trail and Toledo Blade Boulevard, is similarly philosophical.
"We thought this place would fill up during construction," Celico said. "But people didn't want to wait. They wanted space right away."
As a result, Celico's building does not have any tenants yet. But with lease rates starting at $16 per square foot, Celico believes tenants will recognize the value he is offering.
"You can't be greedy in a market like this," Celico said. "It may take a little more time and effort to get the right people out here, but I don't think we need to be too concerned."
Half empty
It is difficult to calculate exactly how much office space has been built in North Port in the past two years and how much is vacant.
That is because some of the recently constructed complexes, such as North Port Commons and Sumter Crossing, can be used for either retail or office tenants. In turn, some developers have halted their construction plans.
Figures presented by the the Economic Development Corp. of Sarasota County point to an office vacancy rate in North Port of about 50 percent, amounting to about 180,000 square feet of space.
Based on the city's historic annual absorption rate of roughly 22,400 square feet, that space will take eight years to fill.
"It's not a pretty picture, especially given current market conditions," said George Hugh, a Venice real estate agent and foreclosure specialist. "Eight years is a long time for developers to keep feeding money to their banks."
Huhn added that the situation in North Port proves that home builders were not the only speculators during the boom.
"You've got to wonder whether developers and bankers -- in their rush to develop in 2004 and 2005 -- were doing proper due diligence," Huhn said.
Benderson Development Group's office park on Toledo Blade near Interstate 75 is a case in point: The company's six office buildings, totaling 40,000 square feet of space, stand empty.
"I'm sure they saw rooftops being built and they didn't count on them being sold to speculators," Huhn said. "You've basically got a situation down there in which half the homes are empty."
Nevertheless, the consensus among North Port's commercial real estate agents and government officials is that the city's problem is one of temporary oversupply that will be rectified as soon as North Port's home builders start cranking again.
"Commercial development is way behind demand in North Port as it is," said Paul Schouten, a commercial real estate agent with Michael Saunders & Co. in Englewood. "We may go through a period of slight oversupply. But then we'll go into another growth phase.