Optimism Abounds: Florida’s Top Markets See Robust Demand for Retail Space
The $4 billion Miami Worldcenter project will include two skyscraper hotels, several high-rise apartment and condominium towers, an office tower and more than 300,000 square feet of retail space across more than 40 separate tenants.
Participants across Florida’s retail scene are bullish on the growth prospects in the state’s top markets as tenant demand remains robust for new and second-generation space. More than two years removed from the onset of the COVID-19 pandemic, sources say the state has fully rebounded and is even somewhat insulated from the worst effects of the public health crisis.
Part of that insulation stems from a strong surge in employment as the state proved an attractive destination for corporate expansions, particularly in South Florida. Recent examples include Citadel, a $51 billion hedge fund founded by Ken Griffin, moving its global headquarters from Chicago to Miami; Amazon leasing office space in Coral Gables; and Thoma Bravo, a private equity firm focused on the software industry, taking the top two floors of the upcoming 830 Brickell office tower in Miami’s Brickell district. Microsoft and international law firm Sidley Austin are combining to occupy 110,000 square feet at 830 Brickell as well.
According to the U.S. Bureau of Labor Statistics (BLS), Florida’s unemployment rate was at 2.8 percent in June, a 70-basis-point improvement from January. The state’s total nonfarm employment rose 5.1 percent year-over-year in June as well, with strong gains in the leisure and hospitality, manufacturing and professional and business services sectors.
The age-old adage of “retail follows rooftops” is also proving true as the Sunshine State continues to be a landing spot for residents. Florida has exploded in recent years in terms of population growth. The U.S. Census Bureau tracks that the state’s population is up 15.9 percent from April 2020 to June 2021, and is one of four states to exceed the 20 million residents marker.
U-Haul reported that Florida dominated its most recent U-Haul Growth Index, which tracks one-way moving data from more than 2 million customer transactions across the Phoenix-based moving giant’s network. Florida had 10 of the top 25 markets in the 2021 index, including the No. 1 overall market (Kissimmee-St. Cloud, a Central Florida metro situated less than 30 miles south of Orlando). The state had three of the top five destinations in the report, with Palm Bay-Melbourne and North Port coming in at No. 3 and 4, respectively.
Brad Peterson, senior managing director of JLL, says that metro Orlando’s rate of population growth (25.8 percent) has basically tripled the rate of new inventory growth of retail space added since the 2010 Census (8.8 percent).
“Orlando is the second-fastest growing large metro area in the country,” says Peterson. “Population growth and a modest amount of new development over the past 10-plus years has really created some disequilibrium in the market in favor of owners.”
South Florida’s three primary markets (Miami-Dade, Broward and Palm Beach counties) recorded a combined 4.6 million square feet of net retail absorption last year, almost 66 percent more than in pre-pandemic 2019, according to CBRE Econometric Advisors. Approximately 1.7 million square feet of new retail space was delivered in South Florida last year, which CBRE reports is the lowest amount since 2012.
With demand exceeding supply, South Florida has sustained high levels of rent growth. According to second-quarter Colliers data, Miami-Dade County’s triple-net asking rental rates rose more than 15 percent year-over-year. Similarly, Palm Beach County’s rents are up 16.1 percent year-over-year and Broward County is up 13.5 percent in that same time frame. Orlando saw a whopping 23.9 percent rise in rental rates, according to the latest Colliers data, while Jacksonville and Tampa Bay reported 9 percent and 4.7 percent increases, respectively.
“We are at the highest rents I’ve ever seen in my career,” says Carrie Smith, senior vice president of retail at Franklin Street. “And the demand from tenants is still insatiable. So clearly retailers are seeing an uptick in their revenue and their sales, otherwise we wouldn’t be doing deals with the rents that we’re currently seeing.”
“There is not enough product being built right now to service the amount of demand that we’re seeing on the retail side,” she adds. “It’s the story of Florida right now.”
So much so that new retail brokerages are expanding in the state. Metro Commercial Real Estate Inc. recently opened a new office in Miami, its third office overall and first outside of the Northeast. Led by South Florida retail veteran Rod Castan and CEO and principal Tom Londres, Metro’s Miami office will initially launch with tenant rep, leasing and development services and then add property management services to its business offerings.
“Metro is currently the exclusive leasing agent for six development projects in Florida,” says Castan. “These include the Grove Central in Coconut Grove; Centro City in Little Havana; Doral Atrium and Doral Square in Doral; 16000 Pines, a Publix- and Burlington-anchored center under development in Pembroke Pines; and Sarasota Square, a planned redevelopment of the former Westfield Mall, which includes Costco and AMC Theatres.”
Obstacles to Overcome
The strong rent growth performance across the state is even more impressive considering the headwinds the retail real estate sector is facing nationally. Inflation has run rampant in recent months, with the Consumer Price Index in June increasing 9.1 percent over the past 12 months and Producer Price Index rising 11.3 percent in that same time frame.
Michael McNaughton, chief operating officer of Sleiman Enterprises, a shopping center developer and investor based in Jacksonville, says inflation is somewhat kept at bay with landlords able to push rents.
“In this inflationary environment as cost escalations are running high — in conjunction with quality and scarcity of retail product — rental increases are inevitable to keep pace and to ensure that we can continue to operate our centers in the manner that we believe is in their best interest for their value,” says McNaughton.
As a direct effect of rampant inflation, debt has gotten more expensive for lenders to finance. The two 0.75-percent hikes to the federal funds rate by the Federal Reserve this summer, coupled with spikes in the 10-year Treasury yield and Secured Overnight Financing Rate (SOFR) have made both long- and short-term financing more tenuous.
This is all occurring as the retail sector is contending in a yearslong battle with e-commerce competitors such as Amazon and Wayfair, among others. Additionally, the U.S. economy may have already entered into a recession as the U.S. gross domestic product recorded two consecutive quarters of negative growth this year, which is an unofficial indicator of a recession.
Source: Optimism Abounds: Florida’s Top Markets See Robust Demand for Retail Space