Florida’s commercial real estate (CRE) and construction sectors have outperformed much of the country in recent years, fueled significantly by a massive influx of domestic migration post-COVID-19. As people and businesses relocated to Florida seeking favorable tax conditions, a robust economy, and an appealing lifestyle, the state’s commercial markets experienced remarkable growth and strong demand across multiple asset classes. However, several emerging concerns are popping up on our radar that could cause the industry to struggle to maintain its growth trajectory. We will be closely monitoring data for the remainder of 2025.
1. Rising Interest Rates
Rising interest rates have become a significant concern for developers and investors alike. The 10-year rate peaked in January and has settled a little. However, higher borrowing costs directly impact profitability, making financing more expensive and challenging to secure. This environment slows development activity and can depress property values, making it critical for market participants to reevaluate project feasibility.
2. Insurance Costs and Availability
Florida faces unique risks from hurricanes and flooding, causing insurance premiums to rise dramatically. Additionally, insurance companies exiting the Florida market have reduced available coverage options. These challenges substantially increase operating expenses for commercial real estate owners and developers, potentially affecting long-term viability and investment returns.
3. Labor Shortages and Rising Construction Costs
The construction sector continues to grapple with a shortage of skilled labor, driving up wages and project timelines. Combined with higher material costs due to tariffs, this creates considerable headwinds for commercial construction projects. Such issues may delay project completion, impacting returns and reducing competitiveness.
4. Economic Uncertainty and Recession Risk
Broader economic uncertainty and fears of recession negatively influence commercial real estate markets. Businesses become cautious about expansion, leasing activity slows, and investment activity declines. A downturn could substantially weaken demand across retail, office, and industrial sectors.
5. Housing Affordability and Workforce Housing Crisis
Florida’s rapidly rising housing costs have created a substantial workforce housing shortage. Limited affordable housing impacts the ability of businesses to attract and retain essential employees, including those needed in construction. Addressing workforce housing challenges becomes increasingly critical for sustainable economic growth and development. State level laws passed in Tallahassee (Live Local Act, 2023) hope to address this issue. Is it enough to make a dent?
6. Infrastructure Constraints and Transportation Congestion
The rapid growth of Florida’s urban centers exacerbates infrastructure constraints and congestion, affecting commercial real estate attractiveness. Traffic congestion and insufficient transportation infrastructure reduce accessibility and negatively influence property desirability and value.
7. Tariffs
Tariffs continue to affect the commercial construction industry, driving up material costs and complicating supply chains. Representatives from The Related Group, a prominent Florida developer, recently discussed on CNBC significant challenges caused by tariffs, noting increased costs and reduced project profitability, leading to delays and reconsideration of project feasibility.
8. Migration Patterns
A noticeable decrease in domestic migration to Florida, paired with uncertainties surrounding international migration—particularly due to the current administration’s tensions with Canada—poses risks to future demand growth. Canada, notably, is Florida’s largest source of foreign real estate buyers, and diplomatic or trade disruptions could further affect this important market segment.
9. Inflation
It just won’t go away. Inflation further compounds these issues by increasing overall costs, potentially pushing CRE markets toward reduced profitability.
In summary, Florida’s commercial real estate and construction markets face numerous intertwined concerns. At Florida ROI, we proactively monitor these market dynamics and provide timely, strategic advice to our client base. Our team regularly analyzes market trends, engages with industry experts, and remains attuned to economic indicators to ensure our clients are well-prepared and informed, positioning them for sustainable long-term growth and stability.
Final Thoughts
Florida’s commercial real estate sector isn’t short on opportunity—but it’s also facing more complexity than ever. With interest rates, insurance costs, labor issues, and broader economic factors all shifting in real time, staying ahead of the curve is critical. Investors, developers, and property owners who monitor these challenges closely and adapt their strategies will be best positioned to protect their assets and capture future growth.
At Florida ROI, we’re committed to helping you navigate what’s ahead. If you’re evaluating your next move or looking for guidance tailored to today’s conditions, let’s talk. Our experienced team is here to provide clarity and insight—when it matters most.
Frequently Asked Questions
Q: How are rising interest rates affecting commercial real estate in Florida?
A: Higher interest rates are making financing more expensive, which slows down development activity and can lower property values.
Q: Why is insurance becoming a major concern for real estate investors in Florida?
A: Due to hurricane and flood risks, insurance premiums have increased sharply, and fewer insurers are operating in the state, making coverage harder to find and afford.
Q: What’s the impact of labor shortages on construction projects?
A: Labor shortages are causing delays and increasing wages, which, along with higher material costs, make construction projects more expensive and less profitable.
