"Fortunately, our centers are not in Florida," has been a sentiment expressed quite often by retail real estate executives in the past two years. During this downturn, Florida, along with Nevada and Arizona, has served as the epicenter of the housing crisis, with the foreclosure rate in the state for the first six months of the year reaching 3.08 percent, according to RealtyTrac, an online provider of foreclosure information,—the third highest in the country and more than 180 basis points above the national average of 1.19 percent.
A sky high unemployment rate, at 10.6 percent in June, up 660 basis points from June 2007 and 110 basis points higher than the national average of 9.5 percent, has added to the state's woes. All those numbers left a mark on Florida's retail landscape, causing both national tenants and retail property owners and managers to view Florida's future with skepticism.
Recently, in cities such as Miami and Orlando, an influx of young urban professionals has mitigated the effects of the housing bust somewhat, resulting in a tepid resurgence of demand for retail space.
But how have the state's suburban markets fared?
A few Florida retail real estate executives shared with Retail Traffic their thoughts on market conditions. Among them: Jim Thompson, managing director in the Jacksonville office of Regency Centers, a shopping center REIT with a 49-million-square-foot portfolio; Lisa Ferrazza, senior associate in the Boca Raton office offirm CB Richard Ellis; Karen Sanzo, senior leasing specialist with real estate services firm Jones Lang LaSalle, who covers the suburban Miami market; and Boris Kozolchyk, senior vice president for retail in the Miami office of real estate services provider Grubb & Ellis.
Retail Traffic: Florida's retail sector has obviously been hit hard by this downturn because the expected demand for new residential product never materialized. How much have the suburban markets suffered?
Ferrazza: The suburban markets have probably been hit the hardest as far as small shop owners and local businesses go.
Kozolchyk: We are seeing additional vacancy compared to prior years with both the national tenants and the local tenants. For local tenants, the economic conditions make it much more difficult to survive. The fact that there is less employment and people are saving more translates into fewer sales.
Thompson: I think in general Florida has been hit pretty hard. Suburban markets were not exempt and that obviously had a negative impact on our business.
RT: Do you think the state is nearing bottom as far as the housing situation is concerned?
Sanzo: I am not an expert by any means, but I hear from residential brokers that things are selling—not at the prices that they did [before] and they are selling for cash. So maybe the investors are thinking that it's time to jump in because things might start to level off and they are out there looking for great.
Thompson: I think we have a ways to go before we hit the bottom. A lot of issues continue to exist from a residential mortgage perspective, so there will continue to be some fallout. There is no financing available for "jumbos" and that's a category where a lot of people were reaching for first and second homes.
Ferrazza: I can only tell you what I've read and it seems like Florida hasn't hit bottom yet. I think there will still be a lot of foreclosures. Maybe we are close to the bottom, but I don't think the other shoe has completely dropped yet.
Kozolchyk: I think we are getting close to the end of it. But I would suspect that we will still see somewhat of a period of prices dropping [further] before they stabilize.
RT: How have retail occupancy levels been affected compared to what you saw in 2008?
Thompson: In our portfolio, we have historically run at 95 percent occupancy and we ran close to 96 percent for the last 10 years and today we are at 93.5 percent—so that gives you an indication of the impact from the current economy. The majority of our portfolio in Florida is suburban grocery-anchored shopping centers, which are more immune from the effects of recession than most other product types, and those numbers will give you a sense of how severe the downturn's impact has been on retail merchants.
Sanzo: From 2008 to where we are today in the Miami market, I think we are down about 5 percent. But in 2008 compared to 2007, we took a 5 percent hit, so it's a total of about 10 percent. But occupancy rates throughout most of Miami are still about 90 percent.
Kozolchyk: It depends on the type of product. Certain markets have been more affected than others. And sometimes you do not have a real idea of vacancy levels because some of the tenants are not healthy enough to be counted as long-term tenants. They are in place either because the landlord has adjusted the rent or they may actually not be paying rent and plan on vacating the space very soon. I would say I have seen, on average, an increase of 5 percent to 10 percent in the overall vacancy rate.
RT: What kind of an impact has there been on asking rents?
Kozolchyk: We have seen, depending on the area, an impact as high as 25 percent and 30 percent in rent adjustments.
Ferrazza: It's really hard to say what the competing centers are doing, but I would say we've lowered our asking rents by as much as 20 percent in some of our more suburban centers.
Sanzo: In 2008, the Miami market was in around mid-$20s to mid-$30s range for small space. Maybe instead of getting $35 per square foot you are getting $32 per square foot, so maybe you are 10 percent off.
RT: Brokers in downtown areas say they are seeing a bit of a pick-up in tenant activity. Has that been true for the suburban markets?
Sanzo: I think there are more restaurants out there looking, the national retailers are coming back, whereas six months ago, it was "We are not looking for anything until 2010." And the locals are out looking as well, so there is a lot more activity on the street. People think they can get the funds to go and open a new business.
Thompson: There are very few retailers that have the opportunity to grow today because there is no availability of financing for them. We are having good conversations with people, they are interested, but at the end of the day, they don't have sources of capital. But in general, in the last 90 days, we are seeing more interest and activity from tenants. I think it's a good sign because it means they want to grow.
Kozolchyk: I think people are beginning to look. There is enough talk about the fact that the recession may be bottoming out that people are beginning to look. You have certain tenants who, because of their type of business, are in an expansion mode—like TJ Maxx. Those are the ones that are looking, but they are also looking for very, very aggressive deals.
Ferrazza: As far as tenant activity, I am certainly seeing a lot more calls, a lot more interest. I think people are starting to see that maybe we've bottomed out and they are realizing it's time to make the move, to take advantage of the market.
RT: What do you expect to see at this year's ICSC Florida conference?
Kozolchyk:A friend of mine used to say that brokers go to bed every night in despair and wake up every morning with hope. Everybody will be hopeful early in the day. But I think you will see a reasonably calm environment, not too many deals being made. I think this is going to be [more about] sharing information.
Sanzo: I am getting calls from national retailers who want to speak with me about moving into the market and some retailers that are coming from South America. I think the mood is going to be good. Because everybody is kind of moving a little bit, [there's] optimism. National retailers haven't really been doing deals for about a year, how long can they go on like that?
Thompson: I am cautiously optimistic that there is good attendance and a dialogue with the retailers.