Downtown Real Estate: On a Forward Trend
There is no doubt that downtown Pensacola is booming. The residential and commercial real estate of downtown and surrounding areas of Pensacola have experienced much development and growth within the last few years. Several factors such as the improvement of the national economy, recovery of Pensacola’s tourist industry and the community drive and involvement to revitalize downtown has contributed to progressive growth in real estate.
Since the bottoming out of the market in 2008, the trend in real estate has shown a significant increase in sales, fewer foreclosures, and an increase in equity appreciation rates. The average selling price of single-family homes in Pensacola has increased from $181,476 in September of 2014 to $191,670 for the month of July 2015, according to statistics from the Pensacola Association of Realtors. That is compared to the average selling price of $167,189 of single-family homes in 2009.
According to Grey Burge, president of Pensacola Association of Realtors, some of the factors that helped stimulate the economy in our area were the vigor with which investors came back into the market starting in 2009 and 2010 to get the bottom of the barrel deals on foreclosures, and the low prices we saw at that time.
While real estate prices in the Pensacola area have appreciated at an accelerated rate of around 7.1 percent in the last year, the national average saw prices increase slightly less at a 6.7 percent. This high percentage of appreciation, according to Burge, is a difficult rate to sustain. And a more conservative appreciation rate leads to a healthier real estate climate overall.
“I think generally something in the 3-4 percent range is a healthy appreciation range,” said Burge. “I think 3-4 percent is sustainable. I hope and feel like we ought to be able to expect somewhere in that 3-4 percent range over the next five years.”
For downtown Pensacola, however, all bets are off. Percentages are off the charts simply because there are fewer residential units available and growth is expected to excel by leaps and bounds within the coming years. The overall trend since 2012 shows the vacancy rate is going down and the rental rates are going up, not dramatically, but steadily.
Let’s take a look at downtown specifically: according to Chris Palmer, advisor with Sperry Van Ness, there are individual townhouses, which get leased the moment they’re put on the market, and there’s probably a couple hundred of those total on the whole market. Shortly there will be 250 units on one spot (where the Pensacola News Journal was) and those are probably going to fill up the day they open because they already have a waiting list. So statically it’s hard to comprehend the percentage of growth because that would almost be a 100 percent growth the day that delivers. That’s just on the rental market, and there’s still more demand behind that.
That demand of downtown Pensacola shows as land values have gone up around 10 percent in downtown in the last year. Downtown office space is hovering around 7 percent vacancy, which Palmer considers very healthy. Commercial property in the last few years has seen a revival. Buildings that were a few years ago falling apart and vacant are now being repaired and renovated, and are full of life. Now whether commercial developments are fueling residential growth or visa versa is up for debate. That is the timeless question: what came first, the chicken or the egg?
“With commercial development typically comes some jobs, and folks who get a better job will move from being renters to being homeowners,” said Burge. “So there is an effect.”
Sonny Granger, chairman of Eastside Redevelopment Board for the last two years, says the average price for rentals in the Pensacola area is 94 cents a square foot. The apartments being built downtown are going to be around $1.40 a square foot. That’s a big jump at about 40 percent but you’re paying for location and convenience. However, you can’t out-price income growth, which is one of the biggest issues according to Palmer. The prices of housing can rise but if someone can’t afford it then it is not going to sell. So it has to be market based.
According to Granger, the downtown market will drive assemblages and as the community has proven, by being creative, the convergence of buildings, tearing things down, and thinking differently, it will also push development and growth farther out. The demand is increasing. Competition enters the market, so it triggers an upward force on prices.
“The beautiful part about it is success brings success in downtown,” said Granger. “It’s no secret that residential is a big catalyst for downtown growth. We’re working to bring more residential downtown, as there’s more of a push for it, and a demand for it, in all different price ranges.”
One question is where are these budding developments going to go? Finding the right place that can be developed that has parking and can accommodate the amenities desired is challenging. There are only a few parcels of land that are big enough in the downtown area. Another issue is considering the infrastructure of downtown buildings and roadways in light of flooding concerns.
“One specific issue that’s no secret in downtown growth is storm water retention,” said Palmer. “We can’t have every building flooding whenever we get a hard rain, so there’s going to have to be some serious infrastructure solutions. I know there are some grants and getting those will be huge. Because without it it’s going to limit what can be built and where it can be built downtown.”
So where is all this growth coming from? The overall national economy is better than it was a few short years ago. Pensacola’s unemployment rate is at a 4.6 percent, compared to the national average of 5.1 percent. More businesses are relocating downtown from suburban areas and people follow the jobs. The more businesses that are downtown (entertainment, restaurants, and shopping) the more people want to be downtown.
The community of Pensacola has truly come together to help build Pensacola. According to Palmer, the tourism sector has done a great job of promoting Pensacola, now breaking tourism records. And they are not just promoting the beaches but promoting other things like downtown and our city’s history as well. This is bringing people to Pensacola who have never been here before. And according to Palmer, they’ve done an incredible job.
“We are starting to identify problems,” said Palmer. “We know that storm water and infrastructure is a problem. We know education is a problem. In the past I think people hoped that no one noticed that we had those problems. One thing we’re doing now as a community is focusing on things that are important to businesses, and not just on the incentive package.”
With big name players and locals alike determined to revive downtown Pensacola, the growth we see in real estate is likely to continue and improve. Not only is Pensacola welcoming new businesses from out of town, it is experiencing a higher retention rate of local young professionals who are choosing to stay.
“For 10 years now, downtown has been doing good things, and I think we’re not even half-way there,” said Burge. “I expect to see greater things moving forward. Part of our challenge is keeping young folks here. I do think that will help sustain our stability of our market. I think we’ve got some smart, progressive folks. There are locals involved and folks involved who didn’t grow up here and I think that’s great. I’m thrilled with the mix that we have right now and hope it continues.”
Foreclosures (which seem to be stabilizing to an expected rate), storm water retention, limited development areas, and government-development politics are still a concern. However, with the unemployment percentages going down and sustained job growth, coupled with the cost of living and quality of life, the Pensacola area is becoming more of an attractive location for many to call home. Downtown real estate is clearly on a forward trend, and the Pensacola real estate market appears to be ready for a healthy year in 2016.