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Three Strategies for Developers to Consider in 2023

It’s certainly a challenging time for commercial real estate developers and builders, with interest rates continuing to rise while there are still project delays related to the supply chain.

That said, it’s important to consider the situation in context. This is the sixth economic downturn I’ve navigated in my real estate development career, and remember that while rates are higher today, the commercial real estate industry has successfully navigated similar rate environments in the past. Also, there are signs that supply chain challenges are easing a bit – one positive with a slowing economy.

As RSR Capital Advisors plans its first project in the new Clearwater Marina District, we are using a number of strategies that might be helpful for other builders and developers to consider. Here are three:

  1. Wait as long as you can to make decisions related to purchasing that are inconsequential to a project’s timing. Right now, this approach is buying us some time to see if challenges related to borrowing costs and the supply chain ease a bit in the coming months.
  1. As you look to make purchases for projects, it’s worth the trouble to dual source key products and materials. Evaluate data to understand how demand may change within geographic markets and asset classes, which could impact both availability and cost of certain products.
  1. Planning has never been more important, because there is no such thing as just-in-time inventory these days. Make sure you aren’t forced into overpaying for a product because you didn’t properly plan ahead.

Certainly, there are reasons for optimism in 2023, but it’s clear that many in the industry are taking a cautious approach. As one indicator, the AIA’s Architecture Billings Index showed that architecture firms’ billings dropped in November, a surefire sign of a slowdown. But 63 percent of architecture firm leaders told the AIA in a related survey that they are optimistic that 2023 will be a good year for them.

As developers plan new projects, it’s important to remember that a quality location and the scarcity of a certain product type in a certain geographic area continue to be two surefire predictors of a successful project.

These are two reasons we continue to be bullish about our new luxury condominium project in the Clearwater Marina District, where we plan to break ground in 2023. The Marina District just north of downtown is prime for development, and there is not an oversupply of luxury condo units in north Pinellas County.

We can all hope for a relatively soft landing for the economy this coming year, particularly if the Fed continues to ease up on rate increases and the supply chain situation improves. And we are confident that this is a good time to start a new project in west-central Florida.

The state continues to draw thousands of new residents each month, and a business-friendly environment is also attracting more businesses to Florida. Then, add the appeal of the Clearwater area, and you get a number of positive factors that expect to help us as we mitigate potential challenges with our first project in the Marina District.