It’s time to look ahead to 2023 and see how the commercial real estate market is shaping up now that 2022 is in the rearview mirror.
It’s difficult to secure a significant purchase transaction at the moment, that much is obvious. Interest rates are rising, prices are at an all-time high, and expenses are also rising. The stock price is currently low. On the other side, sellers have seen 100% returns in only the last 24 months, and several times that for homes bought in the previous 12 years.
The tax obligation is a factor to take into account as usual. Due to lawfully postponing taxes and, in some situations, avoiding rolling and completing a 1031 exchange, investors from high-tax areas can nevertheless gain from paying a premium for real estate in the Southwest Florida market.
You can reinvest the capital and avoid paying a steep tax after completing a 1031 exchange in Florida and settling there.
The local market for industrial or flexible properties is still at approximately 1% vacancy, but it will be crucial to monitor the millions of square feet of upcoming new construction. For smaller or more cautious investors and developers, the cost of labour, materials, and labour for most on-site projects is prohibitive.
Sale-leasebacks have grown in popularity during the previous two years. Sellers can avoid moving while also receiving a real estate premium. They are free to design the sale and lease in a way that appeals to them and benefits the buyer.
Participants in a sale-leaseback have a variety of reasons for doing so, including the need for capital, the desire to avoid ownership responsibilities, the want to receive a profit, and even the desire to retire.
Southwest Florida has started to recover from Hurricane Ian in recent months. An already constrained housing market was put under pressure by the combination of property destruction and the inflow of new labour. Our staff frequently receives inquiries from companies wishing to rent space, which is difficult for us because there is frequently nowhere to put it.
The supply chain problems that existed before the hurricane are made worse. All project expenses have increased due to the much higher cost of skilled personnel across all trades. The duration of repairs and building projects is greatly influenced by these two variables. Over the following two years, it is anticipated that property insurance rates would rise by another 50 to 100%.
An issue that will receive a lot of attention in 2023 is the potential impact of rising interest rates on the market.
Rising interest rates have not yet had a significant impact on the Southwest Florida market in particular because there is so much going on. Cash purchasers are at an all-time high. These buyers are less affected by loan rates, and they stand to gain if they reduce inflation just like the rest of us.
Due to the fact that real estate has historically served as a hedge against inflation, many investors continue to put money into buildings regardless of current market conditions or interest rates.