SVN Commercial Advisory Group’s recent analysis of the Sarasota Office Market indicates that the market cycle for professional office space is in the late stages of recovery and is nearing an expansion cycle.
Sarasota Office Space; Supply & Demand
Costar Group, the leading provider of commercial real estate information and analytics, recently reported that office-related employment is among the largest growth sectors in this market cycle. The office sector however, still lags behind the annual job growth of leisure and hospitality and construction, which perform well above the national average. Office-related employment has grown by over 3%, adding just over 2,000 jobs over the past year. Most of this job growth has taken place in the professional and business services sector, adding over 1,600 jobs. In the Sarasota market, roughly 40% of the population is age 65 and above which has translated to a significant demand for medical offices in the area. Health services and education sectors also drive office demand in the commercial real estate market of the area.
Costar Group reports that the Sarasota office market lacks new supply. Robust demand has resulted in net absorption greatly outpacing new office deliveries, with vacancies declining below the historical levels. Investment activity has been strong since 2014 with 2017 establishing a new high for total annual sales volume.
As a result, capitalization rates have been compressed. Real Capital Analytics have analyzed relative values for commercial office space since 2005. RCA reports that the average for suburban office space during 2006-2007 was 7.0% versus the last 12 months of 6.9%. The following shows examples of cap rates from late 2016 to present:
Source: Costar and MFCRE
Overall, the Sarasota office market has shown indications of improving but pricing is not quite at the point where new development is feasible. Leasing has been on the rise and asking rents have been increasing slightly. Vacancy rates are currently from 5% to 7%.
Annual demand, investment activity and the lack of new supply; coupled with strong historical occupancy and job growth rates above the national average has created an environment where Sarasota is an attractive option for developers looking to expand into tertiary metros.
About The Author- Jim Boyd, MAI, Senior Advisor
Jim’s background spans several decades of experience in appraisal, brokerage and development. Shopping centers are one of his passions as he was VP of a shopping center development company in Seattle developing grocery anchored shopping centers. Boyd also has a solid background in retail properties, office complexes, industrial properties, mobile home parks, self storage, residential subdivisions, apartments and vacant land of all types. Having received the MAI designation in 1980, his licenses include the State Certified General Appraiser,Associate Real Estate Broker, and a State Certified General Appraiser Instructor. He loves to talk real estate.