The theme that emerged from our recent meeting with residential and commercial real estate (CRE) contacts in the Tampa area was that the worst is behind us, and the outlook is positive.
As part of our efforts to monitor the scope and depth of the real estate recovery, the Atlanta Fed’s Center for Real Estate Analytics and representatives from our Regional Economic Information Network (REIN) hosted a real estate forum in Tampa on March 5.
Optimism from the residential side is likely tied to the fact that home prices in the Tampa area were up both month over month and year over year (see the chart).
Perhaps more importantly, the rise in home prices was relatively widespread. Nearly 80 percent of all zip codes in the Tampa metropolitan statistical area experienced some level of positive house price appreciation on a year-over-year basis. While 31 percent of zip codes in Tampa experienced modest house price appreciation of from 0 percent to 5 percent (see lightest-green portion of the 2012 bar in the chart below), close to half of zip codes in Tampa experienced house price appreciation of from 10 percent to more than 20 percent (see the darker-green variations in the 2012 bar). This represented quite a change from one year earlier, when more than 80 percent of zip codes in Tampa experienced some degree of house price decline (as evidenced by the portions of the 2011 bar shaded in red).
Half of our contacts described home inventory levels (both new and existing homes taken together) as undersupplied (see the chart). Brokers reported that there are not enough MLS listings of existing homes to satisfy home-buyer demand. This situation is compounded by the fact that builders are tightly controlling the pace at which they release new homes onto the market to prevent burning through their new-home inventory too fast. Most contacts also indicated that finished lot inventory levels were undersupplied in the Tampa market.
Most contacts indicated that the amount of available credit fell short of demand, though it was encouraging to see that a growing share of contacts perceived the amount of available credit to satisfy demand (see the chart). While it is possible that this observation stems from either the particular mix of stakeholders present or from specific dynamics in the Tampa market, it might also signal that credit is starting to become more available, which is an improvement from previous polls we’ve conducted (here and here).
The outlook for residential real estate conditions in Tampa was rather positive. All of the contacts polled indicated that they expect construction activity to rise in their market over the next six months (see the chart). The vast majority of contacts also expected to see continued growth in home sales and in home prices.
Shifting to CRE, contacts reported that construction activity during the first quarter was up slightly from a year earlier. However, most of the activity has been driven by tenant improvements. They noted that firms are more interested in the efficient use of space along with floor plans that encourage collaboration. Most new construction is build-to-suit and growing more popular. The sentiment is that now is the right time to buy space rather than rent. Developers also noted that labor and material prices were on the rise.
Much of the commercial construction activity remains centered in the apartment market and is urban and concentrated in nature. Despite large numbers of units coming to market, net absorption has remained positive.
Office and industrial properties have experienced positive net absorption over the last six months. Contacts indicated that optimism, pent-up demand, and population growth have fueled that trend, while the retail sector remains soft.
The outlook for Tampa’s CRE market is mostly positive. The majority of our contacts expect the market will improve slightly this year. Net absorption should be slightly positive during 2013 while vacancy rates are expected to edge down. Most anticipate asking rents will stabilize or rise slightly.
Contacts’ positive outlook was fueled by continued population growth and expected improvements in employment. They noted that corporate relocation activity was expected to return this year. They felt that the Tampa market is once again cost-competitive, allowing it to once again attract new businesses.
The message from Tampa was clear: real estate markets are improving. After several years of decline, it’s a welcome change.
By Jessica Dill and
Whitney Mancuso, senior economic research analysts in the Atlanta Fed’s research department