Coldwell Banker Schmitt's Commercial Real Estate Report

KEYS-WIDE OVERVIEW

The sale of 24 commercial properties in the first half of 2016 was a decline of 38% from the 39 for the first half of 2015 and represents the lowest number of sales for the first half of the year in the last 16 years. The previous low of 13 occurred in 2009. The high of 59 occurred during 2006.

The low number of sales allows any large or small sale to have an inordinate impact on the averages, and those averages will be less meaningful as a result.

The $1.95M Average Sale Price (ASP) for 2016 represents a 53% increase from the $1.27M for that period last year. The highest ASP for the first half of the year was $2.38M which occurred in 2005, and the lowest was $638K in 2010.

The Dollar Value of Sales declined by 6% to $46.9M compared to $49.8M for 2015. During the past 16 years, the highest during the first half of the year was $124M in 2005. The lowest of $12M occurred in 2009.

The Sale Price-to-Original List Price (SP/OLP) showed a slight increase of .87% to 87.36% from 86.61% a year earlier. (The SP/OLP compares the sale price of the property to the list price of the property at the time it first came on the market versus the list price at the time the contract was written, and provides a measure of the mismatch between many sellers’ initial list price and the market price acceptable to buyers.) The highest, 98.03%, occurred in 2000 with the lowest, 58.78%, in 2007.

The Sale Price-to-Final List Price (SP/FLP) of 89.15% was also a very slight increase, .16% from 88.99% in 2015. (The SP/FLP compares the sale price of the property to the list price of the property at the time the contract was written instead of the time the property was first listed, and reflects the average percentage of the final listed price that buyers are paying for properties that have sold.) The highest, 98.09%, occurred in 2014 with the lowest, 81.43%, in 2009.

The margin between the SP/OLP (87.36%) and SP/FLP (89.15%) is 1.79%, which indicates, on average, a seller can anticipate price reductions during the term of the listing of 1.79% from their Original List Price to the Final List Price prior to receiving a buyer’s offer. The lowest, 1.32%, occurred during the first half of 2006, and the largest reduction was 48.55% in 2007.

Average Days to Sell (DOM) increased 4.6% to 175 days from the 167 of 2015. This is a measure of the number of days between the date the property was listed and the date the sale closed.

Listed Properties decreased by 13% going from 220 at the end of June last year to 192 on June 30 this year.

The 48 Months of Inventory (MOI) is an increase of 42% from 34 months at the end of June 2015. MOI provides a measure of the rate of sales versus the supply of properties and is also known as the "absorption rate."

<strong">MARKET AREA DETAILS

Number of Sales: The number of sales decreased across three of four Keys market areas with the Lower Keys realizing the only growth, 67%, to 5 compared to 3 the previous half-year. The Middle Keys decreased 33% to 4 from 6 in 2015. Key West decreased 50% going from 20 to 10 sales this year. The Upper Keys also declined 50% with 5 sales compare to 10 one year ago.

Listed Properties: Only the Key West market realized an increase in properties for sale, 16%, to 116 from 100 on June 30, 2015. The Upper Keys, Middle Keys and Lower Keys markets each experienced the following sequential decrease in number of listed properties of 27, 17, and 32 over the 54, 33, and 33 last June for a sequential decline of 50%, 48%, and 3% for each of those markets.

Average Sale Price: The ASP rose across all four Keys markets with Key West increasing the most, 81%, to $3.4M from $1.88M a year earlier. The Upper Keys had the second highest increase with 72% at $1.1M from $640K for the first half of 2015. The Middle Keys ASP rose by 63% to $1.2M from $774K in 2015. The Lower Keys ASP showed the smallest increase, 21%, to $471K from $390K the previous year.

Dollar Volume of Sales: Positive growth in the Dollar Volume of Sales occurred in two markets: the Lower Keys was up 101% to $2.3M compared to $1.17M in the first half of 2015; the Middle Keys increased 9% to $5M compared to $4.6M last year. The Upper Keys decreased 14% to $5.5M versus $6.4M. Key West had a reduction, 10% to $34M versus the $37.6M last year as a result of the large drop in ASP noted above. Of note: it’s a bit surprising to see the Dollar Volume of Sales in Key West down only 10% while the number of sales is down 50% from 20 to 10. The minimal effect of the reduction in the number of sales was because 5 of the 10 sales fell into the hospitality sector of Boutique Hotels, Inns, Bed and Breakfasts, and Guest Houses. These properties ranged in price from $9M to $2.675M. Properties sold included The Old Town Manor House and Rose Lane Villas for $9M (this property featured 20 rooms which equated to $450K/rm.) The boutique hotel, Azul Key West, sold at $4M and with 11 guestrooms $336K/rm.The Mermaid and The Alligator B&B brought $3.5M or $388K/rm for its 9 units. The Blue Parrot Inn sold for $2.8M with 11 rooms or $254.5K/rm, and The Curry House sold $2.675M or $297K/rm for its 9 rms. The price per room ranged from $254K to $450K and averaged $366,250 per room.

Sales Price to Original List Price (SP/OLP) and Sales Price to Final List Price (SP/FLP): The largest change in SP/OLP margin was in the Upper Keys with a gain of 16.2% to 94.25% from 81.11% last year. The Lower Keys margin SP/OLP dropped 11.08% to 78.86% from 88.69% in the first half of 2015. The Middle Keys had a very slight change in this margin, down 1.37%. The margin in Key West changed the least, just .98% from 89.75% last year to 90.63 so far in 2016. The margin between SP/OLP and SP/FLP in Key West is an exceptionally low .85%, and the Lower Keys showed no difference between the SP/OLP to SP/FLP.

Average Days to Sell (DOM): The Lower Keys increased 92.22% to 173 versus 90 in 2015, followed by the Upper Keys, up just 3.94% to 211 from 203 last year. Middle Keys DOM dropped by 27.04% to 116 days from 159 during the first half of last year and Key West declined 7.8% to 200 compared to 217 in 2015. (We continue to believe the average sale periods reported are artificially low as they do not accurately account for the property being previously listed with one or more brokers prior to being sold.)

Months of Inventory (MOI): Key West had an increase in MOI of 133% from 30 to 70. The Lower Keys MOI shrunk by 41% to 39 from 66 months. The Middle Keys decreased 21% from 33 to 26 MOI. The Upper Keys increased by just 2%, or one month to 33 from 32.

Below, we present the Florida Keys Commercial Market activity for each of the four major submarket areas annually from 2000 through 2015 and Year-to-Date 2016 in order to provide a continuing update to the historical perspective of commercial sales.

The Upper Keys consists of properties from Lower Matecumbe to Key Largo. The Middle Keys includes properties from the Seven Mile Bridge to Long Key. Lower Keys properties range from Bay Point to Big Pine Key. Key West properties run from Old Town to Shark Key.

The properties in this report include commercially-zoned land, multi-family residential, hotels, motels, and office space as well as industrial and retail (which includes restaurants) with sales registered among one of the three MLS systems in the Keys within a calendar year. The yellow and salmon backgrounds denote the year with the highest and the lowest numbers, respectively, for each of the three categories: Total Number of Sales, Average Sales Price and Total Sales Volume Dollar Value.

As a reminder, the impact of Hurricane Wilma in October 2005 and the downturn in the national economy put the commercial market in a slump, just as those events did for the overall Keys market, with the commercial market commencing a recovery in 2010 with increased sales.

Total Number of Sales: The number of commercial sales peaked in 2003 for Key West (72), 2005 for the Middle (29) and Upper Keys (24) and 2006 for the Lower Keys (15). Sales bottomed out for the Lower Keys (1) and Key West (19) in 2008 and 2009 for the Upper (7) and Middle Keys (4). Since 2008, the Lower Keys reached 11 sales in 2012 with lower amounts since, including 5 for 2014. Key West reached a high of 48 sales for 2014, with just 10 over the first half of 2016, sales may not exceed the previous low of 19 in 2008. The Upper Keys high since the 2009 low was 23 last year, and there were 10 sales during the first half of 2015. The highest level of Middle Keys sales since 2009 is 20 recorded during 2015. There were 6 over the first six months of 2015. Total commercial sales Keys-wide peaked in 2003 with 120, and bottomed out at 36 in 2008. The highest total since then was 77 for 2014, followed by 71 during 2013. Not surprisingly, the Key West market has been the most active with a historical average since 2000 of 54% of all commercial sales, followed by the Upper Keys with 19%, then 17% for the Middle Keys and 10% for the Lower Keys.

Average Sales Price: Sales for 2000 through 2012 show that the average sales price peaked in the Lower Keys in 2003 ($1.8M), followed by the Upper Keys ($2.5M) and Key West in 2005 ($3.0M) and the Middle Keys ($3.8M) in 2006.

Keys-wide, the average sale price has increased 84% in the first six months of 2016 primarily due to an increase in Key West of 144% followed by the Middle Keys, up 75%, and the Upper Keys up 16%. The Lower Keys ASP dropped 39% for the same time period. The price range of sales throughout the Keys has not changed year over year, yet with significantly fewer sales during the first half of 2016, the ASP has moved upward.

Dollar Volume of Sales: The dollar volume of commercial sales peaked in all areas in 2005 except for the Lower Keys which peaked in 2006. That year, the commercial market had the highest number of sales combined with the record ASP for the Upper Keys and Key West along with the second-highest ASP for the Middle Keys. The Lower Keys dollar volume of $21.7M peaked the next year in 2006 and the second-highest ASP was recorded for the area. Historically, since 2001, the Key West market area dollar volume of sales -- as it has with the total number of sales -- accounted for over half of the commercial market with 55%, followed by the Middle Keys with 20%, Upper Keys with 17% and 8% for the Lower Keys.