Market Overview

The second quarter of 2008 has exhibited continued flatness in the local real estate market. Over supply continues to be a problem and will likely be augmented by record foreclosure filings, which surged in April. On a market wide basis, the number of real estate transactions and the average price has continued to decline.

The recent State amendment for property tax relief has not resulted in any evidence of improvement in the real estate market. Owners of real property remain over-burdened by ad valorem taxation to the extent that the market is adversely impacted. Additionally, the property insurance industry is still pricing its product well beyond what the market can tolerate. Recently, the State of Florida has been wrangling with Allstate in efforts to secure information and deal with high rates and business practices. Clearly, insurance solutions remain in the far distant future. Relief from tax and insurance expenses is a necessary prerequisite for our transition out of present market difficulties.

As if inflating foreclosures, taxes, and insurance were not enough, escalating gas prices have also began to impact the market. Small businesses that utilize high quantities of fuel are having to increase prices to maintain profitability. Some markets are seeing enhanced demand for real estate that is exceptionally proximate to employment and support services; and this trend is likely to continue for so long as fuel prices remain inflated.

Although unemployment rates are continuing to increase, this locality is fairing better than nationally. Increasingly, it is becoming apparent that the Pensacola economy will benefit from the economic growth occurring in the Mobile market and in areas of Baldwin County. The addition of industry in these areas will likely help accelerate recovery in the Pensacola area and eventually result in employment gains.

In Pensacola, lease rates for office and retail space continue to be flat and the supply of offered space has continued to increase. Capitalization rates are relatively flat in comparison with last quarter. We are seeing very few acquisition and development projects and none that have a residential component. Presently, single-family market absorption levels are too low to support feasible subdivision development projects.

Commercial real estate prices continue to show the most resistance to market decline; however, the number of commercial transactions has declined over 2008, as with the rest of the market. The greatest decline in the number of market transactions remains in the residential sector, most prominently with single-family properties. We have no reason to predict anything other than additional softness in the residential sector in the coming months. New home building is fairly stagnant.

Cash and equity continue to be valuable tools for market participants, as opportunities for speculative investing open up.

MARKET OVERVIEW......by R. Shawn Brantley, MAI, CCIM
FIRST QUARTER - 2008