Greater Orlando is making leaps among U.S. target markets for institutional investors, and local property owners and developers are in prime position to capitalize on economic growth and favorable regulatory change, CBRE's head of research for the Americas told GrowthSpotter.
"Orlando before tax reform was in a great spot, and after tax reform is in a better spot," Spencer Levy said on Wednesday. "Orlando and Tampa are on every one of our lists and rising for high growth markets to target for institutional buyers."
Levy will give a presentation Thursday at the 2018 Real Estate Trends & Strategies Conference, held at the Waldorf Astoria Orlando and organized by the University of Florida's Kelley A. Bergstrom Real Estate Center.
The elimination of state and local tax deduction benefits that came in recent federal tax reform boosts the value of markets in Florida, Tennessee and Texas that don't face state income taxes. That factor will drive incremental investment to Florida from high-income investors, Levy said.
CBRE published its 2018 Americas Investor Intentions Survey on Wednesday. In it Tampa moved into the company's Top 15 markets for the first time, and Orlando rose to no. 27 among metros in the Americas, up three positions from a year ago.
But arguably the single most important factor for high-yield potential in secondary markets -- projected office-using job growth -- puts Orlando in an even better light.
CBRE's ranking of the fastest growth markets in the U.S. for that metric now has Orlando at no. 4, following Houston, Austin and Dallas, with Tampa at no. 5, according to data it analyzed from the Bureau of Labor Statistics.
Investing in markets with the fastest job growth can lead to greater net operating income and additional Cap rate compression, even in a rising interest rate environment, Levy said.
"The challenge for (Tampa and Orlando) has been their size as small or mid-level markets, but the ease of business is high compared to South Florida," he said. "For the Cap rate or yield difference as an investor in Orlando versus Atlanta, you're looking at a Cap rate discount of 100 to 200 basis points, depending on asset class."
CBRE is encouraging commercial property owners and developers in Orlando to hit the road and court investors like never before.
"If I'm a local operator or developer I would be on the road in New York, Asia and Europe going to the large institutional investors and saying 'I'm the best game in town, bring me your money,'" Levy said. "Now is a great time to do that. Orlando is a market where international and institutional investors are looking to because you still can offer a premium compared to larger markets."
As the supply of core assets drops and investors broaden their search for yield, the race to find "the next Seattle" has more investors focusing on the higher-yield potential of growing secondary markets like Orlando, Levy said.
There is ample capital in North America to continue driving commercial real estate investment, but Levy is encouraging clients to not discount the compound value that can be reaped from luring more foreign capital to Orlando.
"It is cheaper than other forms of capital, and the single biggest factor that gets your market from second or third tier to the next," he said. "Orlando has the largest entertainment attractions in the U.S. outside Las Vegas. If you use that appropriately, you can draw capital to new areas of your market."
CBRE's Americas Investor Intentions Survey results show the largest share (45 percent) of investors plan to increase their level of acquisitions in the Americas, compared with last year. This investor appetite marks the reversal of a downward or flat trend from the last two years of the survey.
In total, 88 percent of investors said they plan to maintain or increase spending in 2018, up from 83 percent a year ago.
Florida ranked fifth among states in 2017 for new commercial real estate development, contributing $52.69 billion to the state's economy, according to a new annual impact report by the NAIOP Research Foundation.