A depressed housing market and record gas prices have plunged Florida's economy into recession, local economists report. But southeast Florida's luxury retail market offers a bright spot in the Sunshine State's otherwise bleak economic landscape. It is blossoming because of a combination of well-heeled residents and a steady flow of wealthy international travelers taking advantage of the weak dollar.
The rich are snapping up designer baubles throughout Palm Beach, Broward, Monroe and Miami-Dade counties, and many retailers are expanding to accommodate them. While the U.S. economy has stalled, the global economy has expanded at 4% to 5% annually for the past five years. Worldwide, the number of high-net-worth individuals grew 6% in 2007 to 10.1 million, and the highest net-worth sector — people with assets of $30 million or more — grew 8.8% to 103,300. The assets of the wealthy are expected to grow by 7.7% annually, to $59.1 trillion in 2012, according to the World Wealth Report published by Merrill Lynch and Capgemini, a financial consulting firm based in Paris.
Along the glittering Florida coast from Palm Beach to Key Biscayne, wealthy families live the high life in mansions, while in contrast, most Miami residents live far more modestly. The median family income in Miami is just $27,225 per year, making luxury condos offered at $500 per sq. ft. unattainable. In Bal Harbour, the average annual family income is $83,570, while in Key Biscayne, it rises to $107,610.
Popular upscale retail destinations like Bal Harbour Shops, Aventura Mall in Miami and the Worth Avenue esplanade in Palm Beach report an increase in shoppers from Russia, Canada and Asia, although the region remains highly popular with travelers from Latin America.
“We understand there may be a decline in local trade and patronage at restaurants that cater to a local crowd. But generally speaking, the losses are not only equaled, but obliterated by tourist spending,” says Matthew Whitman Lazenby, a partner and leasing director for Bal Harbour Shops, a luxury 450,000 sq. ft. center owned by Stanley Whitman and family. Foreigners now account for more than 50% of sales, Lazenby says.
Foreign travelers spent $122.3 billion in the United States in 2007, a 13% increase from 2006, according to the Department of Commerce's Office of Travel and Tourism. Florida was the third most popular destination behind New York and California.
In fact, many wealthy foreigners reside in southeast Florida at least part of the year. The Miami-Fort Lauderdale region is the most popular second home market for wealthy jet-setters, capturing 27% of the state's foreign homebuyer market, or 7.3% of all homes sold in 2007, the Florida Association of Realtors reports.
Sales to foreign buyers of homes priced higher than $500,000 rose 29%, with 11% of the sales topping $1 million. About 45% of foreign homebuyers in the Miami-Fort Lauderdale market are Latin American; 16% are European, the National Association of Realtors reports.
“Cycles don't affect the wealthy like [they do] most people,” says Orin Rosenfeld, associate director of Brokerage Services in CB Richard Ellis' Fort Lauderdale office. That's why local retailers are adding space to accommodate the high-end shoppers, he says.
A total of 5.8 million sq. ft. of retail space was completed in the three counties of Palm Beach, Broward and Miami-Dade during the 12-month period ending March 31, according to CB Richard Ellis. Much of that was upscale retail. Another 4.4 million sq. ft. will be delivered in 2008 and 2009.
In general, Florida's retail sales continue to grow despite the economic downturn, albeit at a slower rate than earlier. The University of Central Florida's Institute for Economic Competitiveness expects retail sales to grow 2.3% in 2008, the slowest rate since 2001. However, the Institute predicts that next year sales will grow 5.9%.
But higher fuel costs are cutting into retailer profits, says Lisa Ferrazza, a sales associate in CB Richard Ellis' Boca Raton office. While sales increased year-over-year, wholesale prices and delivery charges have risen 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 dropped 10 basis points in the first quarter to 5% and neighborhood center vacancy rates declined 60 basis points to 4.4%, according to real estate services firm Marcus & Millichap. Class-A centers command rents of $45 per sq. ft., reports CB Richard Ellis, compared with $25 per sq. ft. for neighborhood centers.
Meanwhile, rents averaged $80 per sq. ft. at Aventura Mall and $200 per sq. ft. at Shops at Bal Harbour, local brokers report. High-end, single-tenant locations along Worth Avenue in Palm Beach and top locations in Miami's South Beach fetched average rents of $100 per sq. ft. to $125 per sq. ft.
Patterns shift in the stratosphere
The U.S. dollar fell to record lows against the euro and Brazilian real in mid-July to about $1.60 each, providing incentive for buying U.S. goods. The weakened dollar lured more Latin Americans, particularly from Brazil, Columbia and Argentina, whose economies are relatively strong.
Palm Beach's Worth Avenue district downtown has benefited from the internationals' spending, notes Sherry Frankel, owner of Sherry Frankel's Melangerie, a gift shop. Frankel also serves as president of The Worth Association, a business improvement group. Worth Avenue retailers have noticed shifts in shopping patterns, but at the end of the day “people in this stratosphere don't really think it matters,” Frankel says. Very wealthy locals will buy gowns, jewelry and accessories for charity balls no matter how bad the economy gets, she adds.
Steve Pruitt, a principal at San Francisco-based Blacks Retail Analysis, says one example of the expansion occurring to accommodate the wealthy is the decision of Zegna, a luxury menswear company, to bring the total number of its stores in southeast Florida to 10.
Independent designers also are offering their collections in the area, says Johannes Rummeny, president of International Trading Consultants USA Corp., a Palm Beach-based brokerage that represents international retail tenants.
Miami is a test market where hot designers compete before going national. Italian boutique Blumarine, which markets Italian designer Anna Molinari's women's fashion line, opened its first U.S. flagship store at General Growth Properties' 740,000 sq. ft. lifestyle center in Coral Gables. The center, called Village of Merrick Park, commands rents from $40 per sq. ft. to $80 per sq. ft.
The center's reasonable rents helped convince Blumarine to open there, says Merrick Park store manager Jorley Rotella. Spanish designer Adolfo Dominguez also opened his first store at Merrick Park and is now opening stores at Bal Harbour and Aventura Mall.
Silvia Tcherassi, a Columbian designer, opened her first two U.S. stores in Miami's Coconut Grove neighborhood and General Growth's Coral Cables center and plans to expand to Boca Raton and West Palm Beach as well as New York City. Tcherassi's Latin American customers can now buy her designs without flying to Columbia, notes Merrick Park store manager Chandra Carroll.
Accommodating the wealthy
So far in 2008, sales at Turnberry Associates' Aventura Mall jumped 15% over 2007 figures, says Jeff Mooallem, regional vice president for development. He declined to provide specific numbers, but said they exceed the $800 to $900 per sq. ft. of the average healthy mall.
Aventura-based Turnberry plans to spend $125 million to add up to 400,000 sq. ft. to the 2.8 million sq. ft. center, including a 200,000 sq. ft. Nordstrom and 30 designer shops and upscale restaurants.
The owners of Bal Harbour Shops shrank the footprints of larger tenants to accommodate new tenants, says Lazenby. The smaller spaces are more inviting. “There's a tangible quality to warmth, and our customer puts high-end value on that.” Sales have climbed 19.86% over the last 12 months, to $2,139 per sq. ft.
Todd Rouchwerger, owner of JW Cooper, a retailer specializing in hand-made boots, belts, and other accessories, is trimming his Bal Harbour store from 900 sq. ft. to 600 sq. ft. He carries a similar inventory at his 600 sq. ft. store in New York's Times Square.
More competition is coming. The Terrace, a 350,000 sq. ft. lifestyle wing at Simon Property Group's Town Center at Boca Raton mall, is slated for completion this year, bringing the center's total to 1.6 million sq. ft. The development will house 250 retailers, including anchors Saks Fifth Avenue, Nordstrom, Bloomingdale's and Neiman-Marcus. Musician Carlos Santana's new Mexican restaurant, Maria Maria, will also be there.
Simon also created a 110,000 sq. ft. luxury outlet center at the popular Sawgrass Mills mall in Sunrise, Fla., east of Fort Lauderdale. The Colonnade Outlets at Sawgrass Mills features upscale stores: Neiman-Marcus, Salvatore Ferragamo, Coach, and Ralph Lauren, among others.
Forest City builds at race track
Other significant upscale projects under way include Village at Gulfstream Park, 321 North, Plantation, Verde, The Shops at Midtown Miami, Boynton Town Center and Delray Beach Marketplace.
Village at Gulfstream Park, a mixed-use project by Cleveland-based Forest City Enterprises will surround the thoroughbred racetrack, Gulfstream Park. The Mediterranean-style project features a 750,000 sq. ft. open-air lifestyle center with 1,500 condos, 140,000 sq. ft. of office space and a 500-room hotel.
Plantation's 35-acre Fashion Mall, now called 321 North, is getting a $1 billion overhaul by U.S. Capital Holdings Group, a private equity investor owned by Chinese steel company Gang Lu. It will offer 613,500 sq. ft. of high-end shops, dining and entertainment, plus 590 residential units, 613,000 sq. ft. of office space, and a Sheraton Suites Hotel and cultural facilities.
Meanwhile, Florida-based Menin Development Cos. is developing a 900,000 sq. ft. mixed-use project called Verde in a joint venture with West Palm Beach-based The Goodman Co. Scheduled to open in 2010, it will be anchored by a specialty grocery store, and will include a cinema and hotel.
The Shops at Midtown Miami, a 633,000 sq. ft. lifestyle-hybrid of boxes and specialty shops built by Developers Diversified Realty, a Cleveland-based REIT, opened in 2006. Its anchors include, among others, Loehmann's, Target, Circuit City and Marshalls. A major new addition, the South Block, is set to open in 2009 and 2010.
The Sembler Co., a developer based in St. Petersburg, Fla., is building Boynton Town Center, a mixed-use project in Boynton Beach. It will offer 400,000 sq. ft. of retail anchored by a SuperTarget. The project includes 1,100 residential units and 10,000 sq. ft. of office space.
Patricia Kirk is a freelance writer.
SOUTHEAST FLORIDA - BY THE NUMBERS
Source: Census Bureau
Miami-Dade 3.9%; Broward 4.1%; Palm Beach 4.7%
Source: U.S. Department of Labor
LARGEST PRIVATE EMPLOYERS
Three-county region: Miami-Dade,Broward, Palm Beach
Publix Super Markets
Baptist Health South Florida
Source: MiamiBeach411.com, Investments Limited
MIAMI-DADE COUNTY VITAL SIGNS
9.4% vacancy, 1Q 2008
7.9% vacancy, 1Q 2007
$25.54 rent per sq. ft., 1Q 2008
$23.56 rent per sq. ft., 1Q 2007
Source: Marcus & Millichap
4.3% vacancy, 1Q 2008
3.9% vacancy, 1Q 2007
$1,064 effective rent, 1Q 2008
$1,057 effective rent, 1Q 2007
Source: Marcus & Millichap
6.1% vacancy, 1Q 2008
5.1% vacancy, 1Q 2007
$22.27 rent per sq. ft., 1Q 2008
$21.47 rent per sq. ft., 1Q 2007
Source: Marcus & Millichap
6.4% vacancy, 1Q 2008
5.6% vacancy, 1Q 2007
$6.72 rent per sq. ft., 1Q 2008
$6.40 rent per sq. ft., 1Q 2007
Source: Marcus & Millichap
57.8% occupancy, 1Q 2008
59.4% occupancy, 1Q 2007
$107.93 average daily rate, 1Q 2008
$103.10 average daily rate, 1Q 2007
Source: Smith Travel Research
Midtown Miami: The 58-acre, $1.2 billion mixed-use development includes 772,000 sq. ft. of retail space, 150,000 sq. ft. of office space, 3,700 residential units and a 350-room hotel.
Developer: Biscayne Development Partners LLC, Midtown Equities, Samuel & Co, Developers Diversified Realty Corp.
Completion: Earlier phases completed in 2006 and 2007 with additonal retail to be completed by 2010.
Cost: $1.2 billion
Village at Gulfstream Park: The Mediterranean-style mixed-use project near Gulfstream Park racetrack will offer 750,000 sq. ft. of luxury retail. Also planned:1,500 luxury condos, 140,000 sq. ft. of office space and a 500-room hotel.
Developer: Forest City Enterprises
Cost: $1.2 billion
Delray Beach Marketplace: The 400,000 sq. ft. project in Delray Beach includes 86 residential units and 318,000 sq. ft. of retail, theaters and a supermarket.
Developer: Kite Realty Group
Completion: Spring 2010
Cost: $100 million