Southwest Florida not alone in challenging retail environment
Last week, I presented an overview of the local retail market, in terms of available space, declining lease prices and vacancy rates. This week, I’d like to examine how our area’s retail stacks up against that of other Florida markets. My information is based on second-quarter statistics supplied by Cushman & Wakefield, whose Southwest Florida operations I oversee.
— Fort Myers/Naples: During the first six months of 2008, absorption of new retail space slowed substantially and the overall vacancy rate increased significantly. Also, between the second quarters of 2007 and 2008, inventory jumped 4.5 percent to 5.4 percent. At the same time, average triple-net rental rates increased slightly to $20.36 psf, with Lee County’s asking rents currently averaging $18.30 psf and Collier County’s averaging $24.43 psf.
Outlook: With continued softening of retail fundamentals in our, many projects have been scaled back or postponed for the time being. Weak consumer confidence combined with reduced liquidity in the market and the ongoing residential correction suggest continued retail turbulence for 2009.
— Palm Beach: Due to a sluggish national economy and the residential downturn, the county’s economy weakened considerably over the last year. In the first quarter alone, Palm Beach’s retail vacancy rate jumped by 30 basis points to 6.4 percent. Negative absorption of 88,000sf continued a market trend seen in four of the last five quarters.
Further, effective rent growth continued to fall this year, after declining to 2.9 percent in 2007. At year’s end, the average price psf for the market was $198. Institutional and foreign buyers accounted for nearly 60 percent of investment volume over the prior 12 months.
Outlook: Palm Beach County boasts high household incomes, a tourist industry attracting record numbers of foreigners due to the weak dollar, and a strong technology sector. So while the short-term outlook is challenging, the market has encouraging long-term prospects.
— Broward County: As of mid-year, the Broward retail market remained in equilibrium, with vacancies in the low single digits as new product delivered last year was absorbed. New and existing tenants, including major international, national, regional and local retailers, continued to enter or expand their market presence during the first half of this year. Major deals included Office Depot (20,200sf), Office Max (18,000sf) and Dollar General (11,000+sf).
Outlook: As of mid-year, transactions were slowing due to anemic growth in consumer spending (up just 1.5 percent) and sluggish retail sales (+3.1 percent). These numbers aren’t expected to improve much in 2009.
— Miami-Dade: The Miami-Dade retail market was stronger at mid-year than other parts of the Sunshine State, despite ongoing problems in the residential sector and largely-flat retail rents. A weak U.S. dollar and a second, consecutive hurricane-free year attracted numerous European and South American tourists to the area, boosting retail sales and bringing investments into the region.
Some areas are hotter than others. For example, the buildout of greater Miami is forcing new, vertical development and increasing rents on its high streets. Landlords on South Beach’s Lincoln Road, for example, closed the year with annual asking rents in the $100 — $140 psf range.
Outlook: Slower rental appreciation is expected through the end of this year and into next. Similarly, commercial experts expect fewer retail sales in coming months.
-Orlando: Through the first half of 2008, tenant demand was mixed. Demand from smaller, local users in the 1,200 — 2,500-sf range has declined due to their inability to get financial assistance to start or expand their businesses. Also, many restaurants that were struggling during the good times have closed.
At the same time, their declining demand for space has been offset by increased demand from national retailers and discount stores, as well as education-related tenants. As more of central Florida’s public schools continue to lose funding, both public and private partnership schools are looking for space from 10,000 sf and up in retail strip centers, which can also meet their parking needs.
Outlook: Despite declining in-migration, rising unemployment and various other economic negatives, many commercial brokers and agents believe that strong demand from tourists will hasten the area’s rebound. Further, they say that tourist spending (estimated at two to three times what residents spend) will help boost demand for retail space.
— Tampa Bay: Despite the downturn in the economy and housing market, more than 3 million sf of retail space will be delivered in the Tampa Bay area this year. Most is in anchor-dominated centers and freestanding buildings, and is more than 90 percent pre-leased. However, the days of supply exceeding demand appear to have ended about a year ago.
Beginning in the fourth quarter of 2007, absorption of new retail space slowed substantially while the area’s overall occupancy rate rose slightly. By the second quarter of this year, the increase in rental rates stood at just 1.3 percent per annum, compared to 4.2 percent the year before.
Outlook: Despite solid retail fundamentals in the Tampa Bay area, developers, lenders and tenants have become cautious and are either scaling back or postponing further retail expansion for the time being.
As you can see, Southwest Florida is not the only market facing challenges in retail real estate. Nationwide, developers, landlords and tenants are feeling the negative effects of an uncertain economy, as housing and credit markets correct and consumer spending slows. Further, I don’t anticipate a major bounce in the retail sector in the foreseeable future, regardless of whether or not a government bailout is approved.
At the same time, I firmly believe that there will always be a demand for well located retail space. More important, I strongly suspect that we and other Florida markets will recover from the current downturn before much of the rest of the country does.
Gary Tasman is executive director of Cushman & Wakefield’s Southwest Florida office. For more information, please contact him at (239) 489-3600 or gary.tasman@cushwake.com.