THE LOCAL FORECAST

It looks like a mostly sunny year for business in 2005.

Predicting the economy is about as easy and reliable as predicting the weather. Still, we can bet that on most days next June it will be partly cloudy with a 30- to 40-percent chance of showers. And, after a 10-year track record of consistent growth and insulation against events that shake the rest of the nation, we can make predictions about the local economy as well.

At the federal level, the government is pursuing a stimulating policy, particularly through low interest rates. While those rates have risen lately, Frederick Strobel, the Selby Professor of Economics at New College of Florida, says they remain low both historically and globally, and this has weakened the dollar. Our weak currency will continue to boost exports of goods and services, and will attract more tourists, especially from Canada and Europe. Low interest rates also are fueling the construction boom and boosting investment in capital equipment, which should lead to improvements in productivity.

Our population will expand, thanks to our attractive climate, geography and cultural attractions. Florida economist Hank Fishkind predicts Manatee's population to increase by 8,338 people to 303,116 and Sarasota's to increase by 8,986 to 368,4333. Strobel points out that the pace of migration to our area should pick up, not only because baby boomers are moving here in large numbers, but also because boomers are moving their adult children and their families here, too. This new social behavior will continue the boom in the real estate and construction industries.

Despite the influx of new residents, the local unemployment rate remains consistently below that of the state and nation. In recent public talks, Fishkind said he expects the unemployment rate to drop further in the coming year. As Strobel says, "I don't see much evidence of a slowdown."

Here's what other experts have to say about the Sarasota/Manatee economy in 2005:

Construction and Real Estate

Construction crews will be busy, with numerous residential, commercial and industrial/warehouse projects in development. In Sarasota, "Industrial lots are becoming hard to find and very expensive," says Loyd Robbins of Harry Robbins & Associates. Demand is so high for industrial warehouse space and office condominiums that most projects are sold out by completion of construction. According to Robbins, the hot spots in industrial real estate right now are mostly along the I-75 corridor. The Laurel Road and Jacaranda Boulevard exits also are becoming popular because of the high percentage of the workforce commuting from North Port. In Manatee, expect to see continued development fanning out from the S.R. 64 and S.R. 70 exits.

Typically, higher interest rates should slow commercial development, but Robbins predicts that even with a point increase in interest rates, it will still be advantageous for small business owners to build equity for about the same monthly payment as rent. "They can fix the rate for three to five years, locking in their expenses, instead of facing three- to five-percent increases in rent every year," he says. The only thing holding back construction, according to Robbins, is the struggle to get building materials and the time required by the government approval process.

In residential real estate, expect values to continue to rise, according to Nick Figlow, vice president and general manager of RE/MAX Gulfstream Realty and president of the Sarasota Association of Realtors. Demand remains very high for all forms of residential property, and Figlow expects sustained growth in the market as more people retire here, more people realize they can do business from here and the elderly continue to live longer.

This strong demand is bad news for advocates of affordable housing. Figlow says it will take a "concerted effort by government and private industry" to offer affordable housing, because it is difficult to build what is considered an affordable home (about $145,000), with rising costs for land, construction materials, labor and government fees. A partial solution is to construct more multifamily housing. "There is a huge demand for condominiums right now," Figlow says, with more conversions of rental apartments into condominiums expected in 2005.

Tourism

Despite the hurricanes, "Short-term reservations business is pretty good," says Larry White, executive director of the Bradenton Area Convention and Visitors Bureau. With AirTran and two new Canadian carriers initiating local flights, Fred Piccolo, CEO of the Sarasota Bradenton International Airport, is also optimistic. "One airport consultant said we could see a 25- to 30-percent improvement [in traffic] this year," he says.

Ironically, the hurricanes might help our local economy. White expects to see some pick up in travelers to this area because of extensive damage to Caribbean islands. Based on recent reservation data, Virginia Haley, executive director of the Sarasota Convention and Visitors Bureau, is expecting a good start to the year for tourism industries, and both Haley and White are promoting the area to counter any negative perceptions from the hurricanes. They do not expect the hurricanes to dampen winter or spring travelers, noting they are getting the word out that "We're here and we're open for business." The question is whether meeting planners will continue to book for this area next summer.

Retail

Kerem Kayser, general manager of Westfield Shoppingtown Southgate in Sarasota, describes his firm's strategy as "investing in booming markets to form clusters of malls," such as they have done from Sarasota to Tampa. Westfield hopes to initiate expansion of the Southgate location in 2005, and Kayser notes "all indicators are for strong future growth."

Lexi Winkles, publicity manager for Chicos, which operates stores in Kayser's mall and on St. Armands, says her company is enthusiastic about Sarasota's prospects for growth, as evidenced by its recent consolidation of two small stores on St. Armands into one store of almost 4,000 square feet, larger than the typical Chicos.

Bill Bacon, president of Bacon's Furniture Galleries, expects "significant growth" fueled by new residents and new home construction throughout the area. Bacon is constructing a 20,000-square-foot Drexel Heritage store in Sarasota and is expanding his Port Charlotte location (to which he attracts customers from throughout our market area) by 32,000 square feet to accommodate the Lane brand. Bacon also anticipates a surge in sales for the first six months in response to delays in purchasing and the need for replacement of furniture, both caused by last summer's hurricanes.

Financial Services

John Stafford, president of SunCoast Bank, expects large out-of-state banks to continue to chase the trust and deposit business of retirees this year. Small banks will compete by using technology to cut costs and by providing more efficient product delivery. SunCoast is opening its first branch in Manatee County on S.R. 64 near I-75, and Stafford expects more branching activity by other local banks.

Brad Goddard, senior relationship manager and vice president at Wachovia, agrees, noting, "The health of the community banks in this area is a good defense against an economic slowdown and helps attract other companies to this area, because they provide essential capital funding to fuel the growth of small companies." Goddard says Wachovia, having absorbed SouthTrust, expects 12- to 14-percent growth in commercial and industrial loans on the Gulf Coast in 2005, driven in part by pent-up demand and by historically low interest rates. Though he recognizes the Fed likely will raise interest rates in coming months, Goddard points out that banks have a lot of liquidity and competitive pressures to keep loan rates reasonable.

Manufacturing

Rod Hershberger, president of PGT Industries, says, "We are extremely optimistic about next year. We are expecting close to 20-percent growth in our industry." Hershberger cites pent-up demand from the building trades, which have not yet eliminated the several-week back load created by the storms last summer. Hershberger says PGT is expecting to hire 75 to 100 people this year as it expands its glass and paint processing plants. The only threats to profitability he anticipates are rising costs for resources, fuel and especially employee health insurance.

Peter Straw, executive director of the Sarasota Manatee Area Manufacturer's Association, says sales across companies within the Sarasota/Manatee market are expected to increase this year, but says the hurricanes and the high cost of oil have hurt nonetheless. The biggest challenge this year will be to convince legislators to create incentives for the industry. An unexpected stimulus for manufacturers is the weak dollar, which is creating interest among Europeans who see profit in partnering with U.S. manufacturers to make some of their products at a lower cost.

There is also a renewed focus on exports. Wachovia's Goddard says, "I do see customers across the board starting to think about the international market, to look overseas for clients and materials, and to realize that they are competing internationally." Piccolo says both Dolphin Aviation and Jones Aviation are expanding their facilities and Rectrix Aviation expects to construct a new facility.

Healthcare

As reported in the November issue of Sarasota/Manatee Business, almost all the local hospitals are predicting growth in patients and are planning to expand their facilities. Sarasota Memorial Hospital plans to double the square footage of its emergency care center to accommodate an anticipated 6-percent annual increase in emergency care patients. Manatee Memorial Hospital recently opened its new hospital facility in Lakewood Ranch to accommodate the population growth there, and will soon begin construction on a new patient tower in downtown Bradenton.

Mike Vizvary, spokesman for Sarasota Memorial, says the trend is to decentralize non-emergency medical care, building offices and labs closer to population centers. As a result, Sarasota Memorial expects a slight decrease in admissions, but an increase of more than 14 percent in revenue from outpatient services and a significant increase in its capital budget as it constructs a facility to serve Englewood and North Port and expands its Clark Road facility.

Demand for assisted living facilities increased last year, says Doreen Ross, assistant administrator of The Grand on Beneva. And because last season's hurricanes made many homebound elderly and their families realize they need assurance of help in a crisis, she expects that demand to continue. Ross also expects regulatory changes for assisted living facilities in the area of hurricane preparedness. In the past, the industry has relied on contracts between facilities that allow the residents in one facility to stay in the other during a crisis, but this is not effective if the storm covers the entire state. Ross expects a shift in policy toward making facilities safer (such as adding backup generators), rather than relying on places to flee.

DARK CLOUD

The biggest concern across industries is the rising cost of insurance, whether it is liability, property-casualty or medical. Many businesses already struggling rising insurance costs fear more increases in the coming year.

PGT's Hershberger says, "Healthcare costs are frightening," and he expects employee health insurance costs for his 1,500-plus employees to rise more than 10 percent in 2005. Small businesses are struggling to provide healthcare coverage for their employees as well. And this impacts hospitals. "Our biggest concern is unsponsored [charity] care, which increases every year," says Sarasota Memorial spokesman Vizvary.

According to Craig Smith, managing director of Integra Realty Resources Sarasota, which specializes in senior housing and healthcare, the assisted living industry experienced a severe price shock in 2001 when liability insurance costs increased more than 500 percent. This caused a shake-out in an industry already suffering with thin margins. The Grand on Beneva's Ross says costs currently are rising across the board-but especially for insurance-and this threatens the profitability of assisted living facilities with limited contractual ability to raise prices.

Tod Byram, owner of Byram's Automotive in Bradenton, says liability insurance is his fastest-rising cost, and it didn't pay for damage done to cars on his lot by the hurricane because that was "an act of God."

Also looming on the horizon is rising property-casualty insurance costs in the aftermath of last year's hurricanes.

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