A depressed housing market and record-high gas prices have officially plunged Florida's economy into recession, according to local economists. But a bright spot in the Sunshine State's otherwise bleak economic landscape is southeast Florida's luxury retail market. That scene is blossoming because of a combination of well-heeled residents and a steady flow of wealthy international travelers taking advantage of the weak dollar. Both groups are rebuffing the broader economic challenges and keeping upscale retailers busy throughout Palm Beach, Broward and Miami-Dade counties.
Although the U.S. economy has stalled, the global economy is, indeed, growing. In fact, the world economy has expanded between 4 percent and 5 percent a year for the past half decade, the fastest growth in a generation. One by-product of this growth is that the number of high net-worth individuals worldwide is expanding. In 2007 the number of high net worth individuals increased by 6 percent to 10.1 million and the ultrahigh net- worth sector — those with assets of at least $30 million — grew by 8.8 percent to 103,300.
Their overall net wealth rose 9.4 percent to $40.7 trillion, according to the annual World Wealth Report published by Merrill Lynch and Capgemini, a financial consulting firm based in Paris. And for the first time the average worth of the group's assets surpassed $4 million. The report also predicts that the assets of the wealthy will advance by 7.7 percent annually, increasing to $59.1 trillion in 2012.
That's important for southeast Florida because it has become a major foreign tourist destination. Foreign tourism overall is up 14 percent nationwide, according to the U.S. Department of Commerce Office of Travel and Tourism and Florida is the third most popular destination behind New York and, capturing nearly 20 percent of that market last year. Foreign travelers, in all, spent $122.3 billion nationwide in 2007, a 13 percent jump from 2006.
Southeast Florida benefits even further from international spending because wealthy foreigners live in the region at least part of the year. The Miami-Fort Lauderdale region is the most popular second-home market for wealthy jet-setters, capturing 27 percent of the state's overall foreign home-buyer market. That was 7.3 percent of the total homes sold in 2007, according to the Florida Association of Realtors. Home sales to foreign buyers in excess of $500,000 increased 29 percent, with 11 percent of foreigners purchasing homes in excess of $1 million. Approximately 45 percent of foreign home buyers in the Miami-Fort Lauderdale market are Latin American, while 16 percent are European.
“This is what makes our market different from New York,” says Boris Kozolchyk, senior vice president for retail in the Miami office offirm Grubb & Ellis, who says foreigners typically reside in their southeastern Florida homes for about six months a year — the full length of a U.S visitor visa.
As a result, the economic downturn is barely noticeable in southeast Florida's luxury retail market, according to Orin Rosenfeld, associate director of brokerage services in CB Richard Ellis's Fort Lauderdale office, who suggests this is evidenced by the amount of new space being added for luxury retailers.
A total of 5.8 million square feet of retail space was completed in a three-county region comprising Palm Beach, Broward and Miami-Dade counties during the 12-month period ended March 31, according to CB Richard Ellis. Much of that space was devoted to upscale retail and another 4.4 million square feet in the pipeline is to be delivered by 2010. “Cycles don't affect the wealthy like most people,” Rosenfeld says.
In general, Florida's retail sales continue to grow despite the U.S. economic downturn and high gas prices, albeit at a slower rate. The University of Central Florida's Institute for Economic Competitiveness expects retail sales to grow 2.3 percent this year, the slowest since 2001. However, it is predicting sales will pick up in 2009, growing by 5.9 percent. Higher fuel costs are also cutting into retailer profits, says Lisa Ferrazza, a sales associate in CB Richard Ellis's Boca Raton office. While sales are up year-over-year, wholesale prices and delivery charges have risen along with fuel costs. “Retailers can't afford to raise prices, but it's costing them more to operate their businesses.”
Still, southeastern Florida's overall retail vacancy rate dropped 10 basis points during the first quarter to 5 percent and neighborhood/community center vacancy rates declined 60 basis points to 4.4 percent, according to Marcus Millichap's Second Quarter 2008 report. Class-A centers command rents of $45 per square foot, according to CB Richard Ellis, in contrast with $25 per square foot for neighborhood centers.
Meanwhile, luxury centers pull in even more than that with rents averaging $80 per square foot at Aventura Mall and $200 per square foot at Shops at Bal Harbour, according to local brokers. Meanwhile, high-end, single-tenant locations along Worth Avenue in Palm Beach and top locations in Miami's South Beach fetch average rents of $100 per square foot to $125 per square foot.
International tourists, residents
The discounted U.S. dollar has helped propel the influx of international visitors. The devalued currency fell to record lows against the euro and Brazilian real in mid-July to $1.6038 and $1.5960, respectively. The weakened dollar is luring more Latin Americans to the southeast Florida market, particularly from Brazil, Colombia and Argentina, Kozolchyk says, noting these countries are enjoying strong economies.
The region's popular upscale shopping destinations, including Bal Harbour Shops, Aventura Mall in Miami and the Worth Avenue esplanade in Palm Beach, report an increase in shoppers from all corners of the globe, including an increase in shoppers from Russia, Canada and a number of Asian nations.
Matthew Whitman Lazenby, a partner and leasing director for Bal Harbour Shops, an ultra-lux, open-air 450,000-square-foot lifestyle center owned and operated by founder Stanley Whitman and family, suggests that foreign foot traffic has increased, offsetting any decline in spending by locals and U.S. tourists, to comprise more than 50 percent of sales. “We understand there may be a decline in local trade and patronage at restaurants that cater to a local crowd,” he says. “But generally speaking, the losses are not only equaled, but obliterated by tourist spending,”
Foreign shoppers are also helping to offset a decline in spending by locals and domestic tourists at Palm Beach's downtown Worth Avenue luxury shopping district, notes Sherry Frankel, owner of Sherry Frankel's Melangerie, a gift shop specializing in custom-made gifts, and president of the Worth Association, the area's business improvement organization. Worth Avenue retailers have noticed some shifts in shopping behavior, but, at the end of the day, “people in this stratosphere don't really think it matters,” she says, contending hyper-wealthy locals will shop for gowns, jewelry and accessories to wear to charity balls no matter how bad the economy is.
Lured by its attractive demographics, independent luxury retailers are expanding in southeastern Florida, according to Steve Pruitt, a principal at San Francisco-based Blacks Retail Analysis. That includes Zegna, which manufactured luxury fabrics in the nineteenth century and sold only to custom tailors. In 1968 it began manufacturing its own line of clothing and is now the dominant player in the men's luxury market. Zegna fashions are available at upscale menswear and department stores throughout the United States. Zegna also has 10 stores in various stages of opening, two of which are in southeast Florida at Bal Harbour and Town Center at Boca Raton.
Independent designers are also striking out on their own to oversee control of the marketing of their creations, says Johannes Rummeny, president of International Trading Consultants USA Corp., a Palm Beach-based brokerage firm specializing in representation of international retail tenants. “The reality for designers is big names like Saks Fifth Avenue use their private labels to attract clientele, and once the product is in the store so many weeks, markdowns are taken,” Rummeny says. “Designers want longer, stabilized pricing, but also a market presence where they can offer a whole collection.”
Miami is a good candidate for launching new concepts. Like New York, it is a test market for up-and-coming designers before they go national. In both cities, high-end independents and foreign designers try to capitalize on the high volume of international shoppers, which may give them heightened brand recognition.
For example, Blumarine, which markets Italian designer Anna Molinari's women's fashion line, opened its first U.S. boutique in Coral Gables, at General Growth Property's Village of Merrick Park, where rents range between $40 per square foot and $80 per square foot.
Blumarine's Merrick Park store manager, Jorley Rotella, notes the rents at the 740,000-square-foot lifestyle center are low compared to New York, which influenced the decision to open its flagship store there. More importantly, the region's warmer climate and international clientele made southeastern Florida a better fit for this line, which she says is very colorful and sexy. Spanish designer Adolfo Dominguez also opened his first store at Merrick Park and is now opening stores at Bal Harbour Shops and Aventura Mall.
Silvia Tcherassi, a Colombian designer, opened her first two U.S. stores in Miami's Coconut Grove neighborhood and at General Growth's Coral Cables center. There are also plans to expand to Boca Raton and West Palm Beach, as well as New York City. Tcherassi's Merrick Park store manager Chandra Carroll notes Tcherassi used to sell her line through southeastern Florida boutiques but decided to open a U.S. flagship store in Miami to provide her Latin American customers in America personalized service and access to her full line without flying to Colombia. Another advantage of operating stores, she says, is to provide the control needed to retail more effectively. “As weand produce each product of our collection, we can plan our deliveries with absolute freedom and respond quickly to the fashion market.”
For the region's existing luxury centers, the confluence of trends has boosted sales figures. Sales at Turnberry Associates' Aventura Mall in Aventura have jumped 15 percent this year over 2007. Sales per square foot exceeds $900, says Jeff Mooallem, regional vice president forat Turnberry Associates, who adds, is more than generated by the majority of area malls.
However, Turnberry wants more. It is planning to spend $125 million to add up to 400,000 square feet to the 2.8-million-square-foot center, including a 200,000-square-foot Nordstrom and 30 more designer shops and upscale restaurants.
The owners of Bal Harbour Shops are taking a different tact reducing tenants footprints make room for new storefronts, says Lazenby. They contend the smaller spaces have a more intimate and inviting feel. He says, “there's tangible quality to warmth, and our customer puts high-end value on that.” So far, sales have climbed 19.86 percent in the past year to $2,139 per square foot.
Todd Rouchwerger, owner of JW Cooper, a retailer specializing in hand-made boots, belts, buckles and accessories, is in the process of downsizing his Bal Harbour store to 600 square feet from 900 square feet. He says the change will have no impact on business and it will carry the same inventory as his 600-square-foot store in New York's Times Square.
Population: 5.9 million [Miami-Dade, Broward, Palm Beach counties]
Percentage of population born abroad: 51%
Average annual wage: $35,700
Per capita Income: $33,144
Average retail rent: $29.71, Miami-Dade; $22.84, Broward; $22.71, Palm Beach
Retail vacancy: Miami-Dade County, 3.25%; Broward County, 4.4%; Palm Beach, 4%
Total retail inventory: Miami-Dade, 29.7 million sq. ft.; Broward, 37.7 million sq. ft.; Palm Beach, 30 million sq. ft.
Sources: Census Bureau, U.S. Department of Commerce Bureau of Economic Analysis, U.S. Department of Labor, CB Richard Ellis