W. Palm Beach, Boca Raton Among Highest in Commercial Real Estate Demand

A new report on the U.S. office and industrial space markets pegs West Palm Beach as a national player in both sectors.

The new findings by CB Richard Ellis identify West Palm and Boca Raton as among the top 10 Sun Belt markets best able to raise office rents during the next five years, given growing demand for Florida real estate — which happens to also be in scarce supply.

• West Palm’s commercial real estate market also is singled out as having the lowest capitalization rate in the country.
• The rate, considered a key measure, is the net operating income divided by the purchase price.
• What this usually amounts to us a low capitalization rate typically translating to a high acquisition price.

There are problems, of course: Volatile gas prices and the bursting of the speculative bubble in the Palm Beach housing market are cited as potential stumbling blocks.

Although neither would halt development altogether, the authors write:

“Markets having the greatest exposure to inflated housing prices may have the most difficult time in dealing with the fallout from soaring gas prices and plummeting home values.”

That would seem to describe the scene in Palm Beach County, where historic Florida mortgage rates remained low for so long that home prices ballooned by 30 percent from July 2004 to mid-summer 2005. People simply believed they could not lose money.

Of course, housing markets have cooled since then, and the Port St. Lucie area is ranked sixth in overvalued markets in the country, according to a mid-year survey of real estate information firm Global Insight and National City Corp. West Palm Beach weighs in at number 19.

Yet demand for office space remains robust, and scarce industrial space continues to push up prices, even as the long-term future of both Florida home mortgage loan rates and residential real estate is highly questionable.

Here in Palm Beach County, that’s as true in wide open St. Lucie County as it is in Boca’s crowded industrial market.

“The problem with St. Lucie is that no one is speculating on building product up there. “Instead, investors are buying land - and waiting to build,” Robert C. Smith, a CB Richard Ellis V.P., said.