2 min read June 2022 — Tampa Bay is the place to be when it comes to real estate investment. With significant amounts of dry powder and an overperforming office market, Brian Katz, founder and CEO of Katz Capital, spoke with Invest: and shared his insights on the latest trends in Tampa Bay’s real estate market.
How does demand for your various services compare to pre-pandemic, 2019 levels?
Given the accelerated wave of people relocating here, there is even higher inherent demand. There are more clients that we can interact with and then cross-sell. To a great degree, it depends on the type of business we are talking about but our real estate brokerage today is over three times the size it was 24 months ago. In terms of transactional volume, taking out the big corporate brands, we are number three amongst Hillsborough County’s real estate brokerage firms. Across all of MLS in Florida, we are number 46 out of more than 5,000 brokerages – the top 0.3%. On the title agency side, we’re one of the top title agencies in the region. From an insurance agency standpoint, we are not only growing in Florida and Tampa Bay, we are also going north to Illinois where I’m originally from. People are fleeing high-tax environments; however, those markets can offer yield. Down here in Florida, on the flip side, the current market prices are up, as are risk and inflation. If you are taking risk, not necessarily servicing transactions, but if you are taking risk as a real estate owner or lending on real estate, or buying businesses, your basis is just higher. The counter to that is you can focus on a market that might offer more value but not as much growth, which is what we have out here. It boils down to balancing those two operating environments. That is how we have responded to the current market. That being said, we are seeing more transactional volume, but the flipside is we see added risks, so we are allocating capital toward markets that have not had the same growth but that we think over time will benefit from the overall economic growth.
How would you characterize Tampa Bay’s valuation increases?
On the residential real estate side, we are seeing prices double in certain submarkets. There is a massive movement in prices. From a pricing standpoint, the office market is probably lagging, but we are seeing leasing activity that can push rents, which means it is going to push prices. Invariably, when you talk to pretty much anyone, there is just a lack of attractively priced inventory, irrespective of the asset class, because it does not matter where it is, people want to be here.
How significant is the increase in capital searching for investment?
Investor confidence is irrationally exuberant, as it has been going strong, outside of rates rising in 2018 and 2019, for the past 10 years. Demand is pretty insatiable. It has been surprisingly easy to raise money in the last 12 to 24 months, much easier than it used to be because people are seeking yields and returns. When you talk to people in any capital arena, the ability to raise and deploy capital exceeds all expectations. Money needs to go somewhere, which is partly why we are having this inflationary pressure.
How significant is the change in demographic trends in the Tampa Bay region?
Remote work flexibility is impacting us and all these small, medium markets all over the country. The hybrid work environment works. On the office element of that, if you are a huge law firm, you have to be flexible. We are seeing companies that have 10,000 or 8,000 square feet going down to 3,000 or 5,000 square feet because of that hybrid setting. We are inherently trying to allow people flexibility in what they do. This hybrid trend has transitioned into a natural, seamless paradigm for us to slide into.
What is your outlook for the coming three years for the overall real estate market in the Tampa Bay region?
In my mind, barring a massive sea level rise or some other black swan, things are just fine in Tampa Bay. People want to be here. It is a great market. Three years out, the big issue is finding ways to generate a yield and return in a low yield world. If the music eventually stops playing, when is the right time to stop dancing? That is a real big concern where prices are going. Inevitably, when you think about economic cycles, in terms of rationality, there are ebbs and flows. In a weird way, we have not been in a rational world for several years, so anytime there is softness, whether it is COVID-19, interest rates rising — everything has been really stimulative over the last 10 years. What happens when that stimulation goes away? We do not know if it’s going to go away for a long time. Central banks throughout the world are battling demographic issues. It seems as though they are coordinating to stimulate an environment that enables a generational wealth transfer.
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