We’ve written in the last few entries about oversupply and its causes (namely, Demand Overestimation, Optimism Bias and Strategic Misrepresentation). We even found a timely example of those themes in David Lereah’s confessed divorce from the so-called “positive spin.” Lereah, as you may recall, was chief economist for the National Association of Realtors.
Mr. Alexander’s thesis – that it’s a buyer’s/tenant’s market in the commercial market in SWFL – is sound because, as he notes and as we’ve discussed, there is a terrific oversupply of commercial space. This is the practical portion and should not be too striking a proposition. Based on the market forces, buyers and lessees of commercial space should be able to negotiate a pretty good deal.
One can not discount the impact of employment on the commercial market. But, as we have discussed, there are other forces (namely, demand overestimation, strategic misrepresentation and optimism bias) that contribute to oversupply. How, then, do we monitor these forces in order to make better planning decisions in the future? Mr. Alexander says only that maintaining “the supply and demand balance for office space can be tricky [because developers] typically need close to 2 years to finish an office building once they commit to a project.” “Tricky” is probably a purposeful understatement because going further would have been beyond the scope of the article. That said, future development due diligence would benefit from exploring market forces beyond employment.
I would be interested in learning from you developers or commercial professionals what factors are considered during the planning stages to best estimate (it is, after all, always an estimate) rates of occupancy two years out.