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The quiet boom

By CHUIN-WEI YAP
Published December 15, 2006

The building industry may have been jolted by the dramatic drop in the market for houses and condos. But as home-building stumbles, there's at least one sector that's still hot: commercial construction.

As goods and services chase rooftops, there's been a sharp upswing this year in the number of shopping centers, restaurants, medical offices and other commercial projects built throughout the bay area.

The commercial boom is finding its center in counties like Pasco and Hernando, which have plenty of new homes looking for services.

"In developing areas, the rooftops come in first, prior to commercial," said John Coster, a commercial property consultant based in Wesley Chapel. "Once there are enough rooftops to support development, then commercial has to catch up to residential. That's a normal trend."

Coming off a slack 2005, the value of new construction in Pasco soared elevenfold to reach nearly $78-million so far this year.

In Hernando, construction value nearly doubled.

Hillsborough also issued more permits, though the first half of 2006 was soft enough that the value of projects under construction still trails last year.

Unincorporated Pinellas County saw a dip in permits issued this year, from 717 to 634.

Nationally, commercial construction has become the dark horse that has pushed the stock gains of real estate investment trusts up 30 percent this year. REITs are companies that focus on commercial real estate, like offices, malls and industrial buildings.

"Commercial is very strong," said Donald Kipp, a land development manager at Atwell-Hicks, a consulting firm with residential and commercial projects across the Tampa Bay area. "We're probably about 20 percent more in commercial this year. They're good numbers."

Kipp is confident enough that he's predicting a 10 to 20 percent growth in his commercial portfolio next year as well.

But there is a fragility to the commercial boom that could tie its fate to the residential market, industry watchers say.

As home values teeter, a question mark hangs over overall confidence in the economy. If home-building enters a prolonged and deep slump, the effects of wallets snapping shut may seep into the broader economy.

So far, that hasn't happened in the bay area. Patrick Berman, head of retail for Tampa's Cushman & Wakefield brokerage, credits strong job creation and immigration to the region.

But Hillsborough's slight dip in commercial construction value this year is a reminder that growth in commercial building is not uniform and could depend on how built-out an area already is.

While buildings like the Dart Container warehouse in Plant City and Tampa General Hospital's new seven-story medical office helped push value, areas like Temple Terrace also saw building activity halved in the second quarter, compared with the same time last year.

Even in Pasco, 2006's stellar growth in commercial construction value is more of a contrast to its poor performance last year, when builders and contractors flocked to the residential market, than it is a record leap. In 2004, commercial construction value reached $59-million, well above 2005.

But developers still see commercial construction as the silver lining in a year of anguish.

Renee Dyer, commercial vacant land specialist for Trinity-based Prudential Tropical Realty, is counting her blessings.

"Everything we had under contract is still set to close," she said. "Interest rates are still low. ... We've had a good year, and we haven't seen a downturn yet."

Then she laughed, and added, "Maybe I shouldn't have said 'yet.' "

Chuin-Wei Yap can be reached at 813 909-4613 or cyap@sptimes.com.

Commercial real estate

273^* Number of permits in 2005

342^* Number of permits in 2006

$6.7M 2005 value

$77.5M 2006 value

84 Number of permits in 2005

99 Number of permits in 2006

$36.1M 2005 value

$63.6M 2006 value

2,826 Permits in2005

3,049 Permits in 2006

$434M 2005 value

$381.7M 2006 value

(unincorporated)

717 Number of permits in 2005

634 Number of permits in 2006

$61.9M 2005 value

$59.1M 2006 value

2006 figures for Hillsborough and Pasco are year-to-date. 2006 figures for Hernando and Pinellas are for the fiscal year ended October. Incorporated Pinellas County figures were unavailable.*Offices and storesAcross all commercial building categories

Sources: Pasco County, Hernando County, Hillsborough County City-County Planning Commission, Pinellas County

[Last modified December 14, 2006, 22:46:51]