Are Sarasota and Manatee overbuilding commercial and office space? Not by a long shot, say local brokers. Despite the residential real estate downtown, two underlying trends bolster Sarasota-Manatee's position: population growth and Sarasota-Bradenton's enviable 13 percent job growth for the last three years, well above the national average of 2.4 percent.

While rising interest rates, land and construction costs, and insurance are all affecting the commercial market, demand from outside interests as well as local companies wanting to expand remains strong, and inventory is tight, say local brokers.

"There's always been the demand to buy in this marketplace," says N.J. Olivieri, president of Horizon Mortgage Corporation, Sarasota-Manatee's largest commercial brokerage firm. Olivieri assembles and finances deals for out-of-town investors, pension funds and national players such as Benderson Development, which plans to add 3.5 million square feet to Sarasota-Manatee's commercial inventory in the coming years. "This is a stable community," says Olivieri. "You're getting more of that type of investor. When institutions start buying, you know you have a strong marketplace."

Vacancy Rates Decreasing Office and industrial vacancy rates are declining nationwide, according to the National Association of Realtors, and Sarasota-Manatee mirrors this trend. John Swart, president of Lakewood Ranch Commercial Realty and chairman of the Economic Development Corporation (EDC) of Sarasota County, chaired the Manatee Economic Development Council's office space marketing committee last year. "Overall, the markets are very strong for office and the vacancy rates are dropping, so the absorption rate is good," he says. Downtown Sarasota's office vacancy rate is 4 percent, according to Sarasota EDC figures, while downtown Bradenton's, which not so long ago was more than 20 percent, has decreased to 13 percent, according to the Manatee Chamber's EDC. Swart sees no overbuilding, especially not in downtown Sarasota. "They need to build more office space or they are going to run out," he says.

Outside the city limits, Sarasota County office vacancy rates stand at 6 to 7 percent, says Kathy Baylis, president of the Sarasota EDC. "There's not a lot of speculative building in the office and industrial area," she says.

Nationally, office rents are projected to rise 4.4 percent this year, according to the National Association of Realtors. Sarasota-Manatee office space ranges from $18.50 per square foot (including expenses) for older buildings, such as the Bradenton Financial Center on Manatee Avenue, to more than $38 per square foot (including expenses) in downtown Sarasota's brand new Ringling Square.

On the Ranch The huge master-planned community of Lakewood Ranch that straddles both Sarasota and Manatee counties has evolved into a destination for existing employers who want to expand, consolidate or locate near I-75 and workforce and educational facilities. By the end of the year, Lakewood Ranch will include about 2 million square feet of commercial space. Only downtown Sarasota has a higher concentration, with 2.5 million square feet. "We're at about a 5 percent vacancy rate," says Swart.

Mixed-use Success The national trend that brought baby boomers and young professionals to live and work downtown has been good for commercial real estate as well. The city of Sarasota's new master plan and zoning categories encourage mixed-use buildings that combine sophisticated city condos with retail and office space. Residential demand is driving commercial. "It was like turning on a spigot," says Harshman. "All of my downtown commercial sites were overnight residential sites and worth four times more. Now, no one is building just office space."

Janet Robinson, broker associate with Ian Black Real Estate and chair of the office space marketing committee of the Manatee EDC, says downtown Bradenton is building more mixed-use as well, but the city's residential boom lags about three to five years behind Sarasota. Nearly 1,400 residential units will be built in Bradenton over the next two to three years. "The building of the residential condominiums in Bradenton will help absorb some of the existing office space that's been vacant for awhile," says Robinson.

Rising Construction Costs Rapidly rising land and construction costs are threatening the rate of return for new office space, causing some investors to turn away. "We have a $10- to $12-square-foot [gap] from the market rents to the rents one needs to charge for new construction, and I don't see that merging. New office space will be sold, but it will be sold to users," says Harshman.

"Costs of new buildings are going up dramatically," says Swart. "Concrete, steel and drywall have seen incredible cost increases. [In Lakewood Ranch] new buildings, including land, are costing in the $200 per square foot range for a multi-tenant office. Two to three years ago, it was $160 for the same building. Smaller buildings, in the 5,000- to 10,000-square-foot range are up to $250."