Slow tourist traffic may be Florida retailers' most pressing concern today. But bigger problems wait on the horizon for some players as the state's retail landscape grows crowded with super-regional malls, power centers and single-tenant properties. With more developers competing to create new space, same-store sales declines become inevitable.
“In terms of the market in general, Florida is one of the three most sought-after in the country along with Texas and California,” says Bernard Haddigan, Atlanta-based national director of Marcus & Millichap's National Retail Group. “It is well-positioned for appreciation and general vitality for the retail market. Drug stores, restaurants, dry goods, the Wal-Marts of the world — you can't keep that product type on the shelf.”
Mall developers Simon Property Group, Taubman Centers and The Rouse Co. have also taken a special interest in the state. All three REITs are renovating, re-tenanting and building new malls in order to corner various Florida markets and stay ahead of competing developers. The result is a fight for market share. Though mall sales have declined across the United States, analysts say some Florida centers have been harder hit due to new competitors. Simon's Miami International Mall watched sales decline 8% when Taubman's Dolphin Mall opened its doors nearby, duplicating 22 tenants.
“New competition, not slow tourism, seems to be the culprit for lower sales,” says Deutsche Bank Securities Inc. analyst Louis Taylor in a report on his recent tour of a dozen South Florida retail properties. “Yes, tourism is down, but the centers that saw the largest declines also saw new competition in their trade areas. We believe the new competition and the very aggressive defensive tactics by other properties are having a greater impact on the market.”
The state's slight drop in population is another concern for developers, particularly those banking on booming growth and rising incomes to support new centers. Population growth had already begun slowing in 2001, according to the U.S. Census Bureau. It grew by only 2.6%, compared with an increase of 23.5% the previous year. But the state's growth was still significantly higher than the national average of 1.2%.
The real question for mall developers, particularly Taubman, is whether the number of high-end consumers will grow in proportion to the overall population. “It seems that Taubman is positioning itself for the growth of the high-end consumer,” says Taylor in his report. “Florida's population growth is well documented, but it seems that the success of Taubman's new assets in Orlando, Tampa and Palm Beach is more of a function of the growth in consumers who shop at tenants in the ‘upper moderate, ‘bridge’ and ‘luxury’ price points.” Taylor says all the markets Taubman is targeting have good population growth, “but we're not sure about the income.”
Florida lost a total of about 90,000 jobs between April 2001 and April 2002, according to David Marks, president of Marketplace Advisors Inc., in Orlando. The largest deficit, not surprisingly, was in Orlando, which lost 10,600 jobs. Miami, on the other hand, gained more than 9,000 jobs.
But observers see things on the upswing. Marks terms the job loss “a short-term phenomenon,” while Haddigan points out that a rising population is a better barometer for retail. And, he says, an increase in population growth is coming. “And as goes population growth, so goes rent growth,” he observes. Marcus & Millichap predicts lower vacancy rates and higher asking rents in the state's major markets as the economy slowly recovers and tourism rebounds.
Of course, every major market in this huge state has its own characteristics and demographic trends. This is borne out by the current rankings in Marcus & Millichap's National Retail Index (NRI), which ranks individual markets on forward-looking supply and demand indicators such as per capita income, vacancy rates and total retail sales. Out of 35 retail markets rated nationwide, Fort Lauderdale-West Palm Beach ranked number 4; Miami was 19; Tampa was 26; and Orlando was 28.
Orlando
Of all the Florida markets, Orlando is the most dependent on tourism, and a recovery of the tourist trade is the key to its continued retail success. “Orlando and central Florida have seen a tremendous amount of retail development,” says Haddigan. “If you look at total retail square footage relative to the population, it will scare you to death. But much of that space is targeting tourists.”
“Growth's going everywhere,” adds John W. Dowd, senior vice president of development, The Goodman Co., in West Palm Beach. “Tourist demand is down a hair, but the tourist dollars are here to stay. Yes, Orlando's over-retailed, but for a good reason; the population is artificially low.” Goodman is putting its money where its mouth is with the current “de-malling” of the old Osceola Square mall in Kissimmee to make way for an upscale power center.“Part of what's going on here is similar to the rest of the country — continued expansion of supercenters, with Wal-Mart and Target still pretty aggressive,” says Marks.
At the opposite end of the spectrum, upscale fashion retailers are also moving into the state. “The new Mall at Millenia, an upscale 1.2 million-sq.-ft. super-regional, will service the whole central Florida market.” The Forbes Co./Taubman project will be anchored by Macy's, Bloomingdale's and Neiman-Marcus. “It's very strategically located, right between the Orlando market and the tourist hub, and very well positioned to capture both markets,” adds Marks.
Simon's Florida Mall, which clocks $490 per sq. ft. in annual sales, is gearing up to fight The Mall at Millenia to maintain its market share. New Nordstrom and Lord & Taylor anchors will open at the mall this year, bringing its total GLA to 2.4 million sq. ft. Florida Mall, which depends on tourists for half of its traffic, saw sales drop about 8% in 2002, according to Deutsche Bank.
Tampa
The Gulf Coast city of Tampa is repositioning itself as a cultural mecca in an attempt to boost retail spending in its downtown by residents and tourists alike. In June, the city began the final phase of a five-year, mixed-use redevelopment of its CBD that has brought in $6 billion in new construction, including a 28-block cultural zone that includes a $47 million art museum. To get locals into the new “Circle of Development” zone, the city is spending $53 million for a new light rail system.
Tampa improved its standing by three places on the Marcus & Milli-chap NRI this year, due to “a lull in new retail construction and only a moderate increase in vacancy.” Rent growth, however, has dipped over the past 12 months. Marcus & Millichap expects retail completions in the Tampa area to fall by nearly 30% in 2002 as developers delay projects in the planning stages until the local economy picks up.
Retailers such as FAO Schwarz and Dillard's have closed stores in the region, but others are expanding. “Wal-Mart just moved into Tampa and Orlando with its 55,000-sq.-ft. grocery stores,” notes Marks. “They continue to make regional grocery stores pretty nervous.”
“One area that is exploding is the northeast corridor,” says Dowd. “There are 30,000 units planned in that corridor, and as fast as they put them up the homes are selling. The retail demand will come very quickly. It started with the grocery stores; now we're starting to see big-box retailers like Super Target, Super Wal-Mart, Lowe's and Home Depot.”
Fort Lauderdale/Palm Beach
There's no mistaking it: This market is strong, retail-wise anyway. Marcus & Millichap predicts that asking rents will rise to $16.51 triple net in 2002 from $16.20 in 2001, while vacancy increases will slow as the economy rebounds. Newer properties continue to attract investors despite steep price premiums.
“The hot news in Broward is the Wal-Mart and Target supercenters,” says Beth Azor, president of Miami-based Terranova Corp. “Two Wal-Marts have opened in Coral Springs and new Targets have opened in Lauderhill and North Lauderdale — all in the past 12 months.”
Another recent trend, says Azor, is the wave of big-box expansion up and down Federal Highway between Sunrise and Commercial Boulevard. “What's unique is that developers and retailers had to put together parcels using old motels,” she says. “Now we're seeing big box after big box — Barnes & Noble, Circuit City, Comp-USA and Bed, Bath & Beyond buying. The land is very expensive, but the retailers believe sales will justify the rents they had to pay — and so far they are.”
| MSA | Vacancy rate (%) | Annual asking rents ($) | Total retail completions (sq. ft.-000s) | Employment growth | Unemployment rate | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 99 | 00 | 01 | 02* | 99 | 00 | 01 | 02* | 99 | 00 | 01 | 02* | 99 | 00 | 01 | 02* | 99 | 00 | 01 | 02* | ||
| Ft. Lauderdale/W. Palm Beach | 9.0 | 8.4 | 10.2 | 10.8 | 15.4 | 15.9 | 16.2 | 16.5 | 4,121 | 3,709 | 4,156 | 1,689 | 2.3 | 4.8 | 3.3 | 0.1 | 4.5 | 4.0 | 4.8 | 6.4 | |
| Miami-Dade | 7.5 | 7.0 | 7.7 | 8.2 | 17.4 | 18.1 | 18.6 | 19.0 | 1,175 | 1,208 | 2,097 | 1,597 | 1.2 | 2.6 | 2.0 | -0.5 | 5.8 | 5.3 | 6.3 | 8.5 | |
| Orlando | 10.0 | 10.0 | 11.0 | 12.0 | 13.1 | 13.6 | 13.8 | 14.0 | 3,805 | 6,092 | 3,931 | 3,100 | 4.6 | 3.8 | 0.3 | -0.7 | 2.7 | 2.6 | 3.6 | 5.5 | |
| Tampa | 11.0 | 10.0 | 11.0 | 11.5 | 14.3 | 14.9 | 15.1 | 15.3 | 3,040 | 3,941 | 3,532 | 2,500 | 3.2 | 5.2 | 2.0 | -0.4 | 2.7 | 2.6 | 3.4 | 4.4 | Source: Marcus & Millichap |
Geographically in Broward County, leasing is hot in the east (Fort Lauderdale), and hot in the western suburbs, “But in the middle market along I-95 it's not doing well,” says Azor. “This is due to residential growth heading east nearer the coast, where it has always been desirable and very expensive, or further west, where more attractive housing could be found for less money.”
To the north, in Palm Beach County, “I would say the retail environment is healthy,” says Dowd. “There's explosive growth in the Wellington State Road 7 corridor. Three years ago, we had to coax potential tenants for the 250,000-sq.-ft. Coral Sky Plaza to even look at the area. Now, we are completely full and there is close to 1 million sq. ft at that intersection.”
The area's newest regional mall, Taubman's upper-moderate-income-focused Mall at Wellington Green, “may be a little ahead of its time,” Dowd says, but he predicts it will ultimately be successful. The 1.1 million-sq.-ft. center — anchored by Burdine's, Lord & Taylor, Dillard's and JCPenney — started off the year 75% occupied and plans to pass 80% by the holidays.
Dowd also notes a trend back to urban areas up and down the coast, with projects such as City Place in Palm Beach and similar developments in Del Ray Beach, Lantana and Boynton Beach.
Azor is not that sanguine, however. “Everybody wants to copy what City Place has done, but it won't work everywhere,” she says. “Three are planned in the PGA Gardens area alone; they can't all get Barnes & Noble!”
Still, the demographics of Palm Beach are compelling. “You have less population, but more money,” Azor explains. “In Palm Beach you can have the same amount of retail square feet. per person but make more money.”
In addition to Barnes & Noble, other active retailers include Circuit City, PF Chang, Panera Bread and two newcomers to the area — Hair Color Express and Jamba Juice.
Miami-Dade
The current demographic trends have clearly been a boost to the Miami area retail market. “The new Census shows a larger amount of Hispanics — maybe 30%-40%,” says Azor. “The Hispanic population loves to shop, and this has been evident in certain submarkets where there is a high percentage of Hispanics, like Hialeah. Retail sales have been very high.”
Simon's 1.4 million-sq.-ft. Dadeland Mall, which maintains market dominance in South Miami with $720 per sq. ft. in sales, is undergoing a $30 million redevelopment and renovation to keep up with new competitors Dolphin Mall and The Rouse Co.'s upcoming Village of Merrick Park.
“Dadeland still seems to be the mall of choice for the moneyed Latin community in South Florida,” says Deutsche Bank's Taylor. “Dolphin has opened up as an alternative, but it seems to have made only limited inroads so far, having done better with the crowd looking for discounted goods.”
Taubman's Dolphin Mall is currently 80% leased, with a recent anchor position taken by Borders. “It was proposed as a knockoff of Sawgrass Mills, but things have been tough with the economy down and tourism off,” Azor observes. That has decreased the amount of people they expected to be there, so now they may try to add more restaurants and entertainment for the locals.”
With The Rouse Co.'s Village of Merrick Park in nearby Coral Gables set to open in September, Taylor says competition for top tenants could get ugly. The 435,000-sq.-ft. project, to be anchored by Neiman-Marcus and Miami's first Nordstrom, has already cleared a competitive hurdle in settling a federal antitrust suit against the locally based owner of the nearby Bal Harbour Shops.
Management at the 480,000-sq.-ft. Bal Harbour shops had a radius clause in its tenants' contracts forbidding them from leasing space at Merrick Park. “While the legal threat from Bal Harbour is technically over, all the landlords are taking aggressive steps to keep their tenants,” Taylor says. “This may slow the leasing of the unleased space at Merrick or result in a less desirable tenant/credit.”
A shortage of developable land has hurt retail expansion, Azor notes, with companies such as Lowe's and Home Depot unable to find sites for new stores. The land shortage has also required developers to become more creative. “We've seen a lot of renovation of existing properties, as well as more vertical projects,” she says. “One new trend is that car dealerships that were in highly populated areas on very expensive land are selling out to developers, who then build multi-level developments. The couple that have been built are getting rave reviews from the public and from retailers.”
The submarkets of Aventura, Coral Gables and South Miami are all reporting “unheard-of rental rates,” Azor says. “There are strip centers getting close to mall rents and operating expenses, and retailers' sales are justifying those rents. It's very exciting.”
In Miami proper, “They are really trying to develop the Brickell area, get projects out of the ground and see how they perform,” says Claude Chandonnet, managing director of leasing with Urban Investment Advisors in Washington, D.C. “They are going for diversity, trying to bring great retail and high-end hotels there.”
Retailers active in Dade County include Roche Bobois, Baja Fresh, Atlanta Bread Company, Premaman, Hair Color Express and Jamba Juice, he says.
The only soft market in Dade is its southernmost area, Cutler Ridge and Homestead, which incredibly are still suffering the after effects of Hurricane Andrew. “But it will be the next growth area,” Azor predicts.
Marcus & Millichap expects retail completions in the Miami market to fall by 500,000 sq. ft. this year, with demand beginning to increase in the second half of 2002. The company says vacancy rates will rise slightly to 8.2%, allowing owners to push rents up slightly and leading to end-of-year growth at the bottom of the market's typical rate range of 2% to 4%.
| Project Name/City, State | Developer-Manager/Headquarters | Center Type | Project Type | Current GLA/(Planned Addition) | Completion Date* | Anchors |
|---|---|---|---|---|---|---|
| Downtown at the Gardens Palm Beach Gardens | Menin Development Cos. Jupiter, Fla. | MU | N | 351,000 sq. ft. | Spring 2004 | Cobb Theaters, Whole Foods Market |
| Clearwater Mall Clearwater | The Sembler Co. St. Petersburg, Fla. | M | N | 790,578 sq. ft. | October 2003 | Super Target, Costco, Lowe's, Ross Dress for Less, Linens ‘N Things, Borders |
| Riverside Market Square Jacksonville | The Sembler Co. St. Petersburg, Fla. | S | RD | 42,448 sq. ft. | June 2003 | Publix |
| Cobblestone Village St. Augustine | CBL & Associates Chattanooga, Tenn. | C | N | 305,000 sq. ft. | TBA | Beall's, Publix, Michael's, Pier 1 Imports Ross Dress for Less, Bed Bath & Beyond |
| Southland Shopping Center Fort Lauderdale | Morbitzer Group Inc. Maitland, Fla. | S | RN | 159,238 sq. ft. | Complete | Winn-Dixie, Big Lots Beall's Outlet |
| Casselberry Exchange Casselberry | Morbitzer Group Inc. Maitland, Fla. | N | E | 165,355 sq. ft (+26,500 sq. ft.) | October 2002 | Kash N' Karry, Staples, Eckerd, Donatos |
| Gateway Shoppes Florida City | Baumgard Development Corp./IMA, Coral Gables, Fla. | S | N | 25,000 sq. ft. | 2003 | To be announced |
| Miramar Crossings Miramar | Baumgard Development Corp./IMA, Coral Gables, Fla. | S | N | 45,000 sq. ft. | 2003 | To be announced |
| The Loop Kissimmee/St. Cloud | The Wilder Cos. Boston | F | N | 320,000 sq. ft. | 2004 | To be announced |
| Carrollwood Center Tampa | IRT Property Co. Atlanta | S | RD | 92,756 sq. ft. | Fall 2002 | Publix |
| Lutz Lake Crossing Tampa | IRT Property Co. Atlanta | S | N | 67,985 sq. ft. | Summer 2002 | Publix |
| Drew 19 Shopping Center Clearwater | Colliers Arnold Clearwater, Fla. | P | N | 650,000 sq. ft. | Fall 2002 | Marshall's, Babys R Us |
| The Walk Coral Springs | Amera Properties Inc. Coral Springs, Fla. | L | RD E | 240,000 sq. ft. | Complete | Barnes & Noble |
| Village of Merrick Park Coral Gables | The Rouse Co. Columbia, Md. | M | N | 435,000 sq. ft. | September 2002 | Neiman-Marcus Nordstrom |
| Mall at Millenia Orlando | Forbes/Taubman Centers Bloomfield Hills, Mich. | M | N | 1.2 million sq. ft. | October 2002 | Neiman-Marcus, Bloomingdale's Macy's |
| Mall at Wellington Green Palm Beach | Taubman Centers Bloomfield Hills, Mich. | M | N | 1.1 million sq. ft. | Complete | Burdine's, Dillard's Lord & Taylor, JCPenney |
| University Center/Consumer Square University Park | Benderson Development Co./Dorsky Hodgson+ Partners | C | E | 242,000 sq. ft. (+115,000 sq. ft.) | Spring 2003 | BJ's Wholesale, Home Depot |
| Lakewood Shopping Center Margate | Courtelis Co. Miami | C | RD RN | 350,000 sq. ft. | November 2002 | Linens ‘N Things, EXPO Design Center Pier 1 Imports |
| Veranda Park Orlando | Veranda Partners Orlando, Fla. | MU | N | 350,000 sq. ft. | 2003 | To be announced |
| Destin Commons Destin | Turnberry Associates Aventura, Fla. | L | N | 400,000 sq. ft. | 2003 | Belk Resort Store, Bass Pro Shops Marquee Cinema |
| Aventura Crossings Aventura | Turnberry Assoc. & Gadinsky Real Estate, Aventura, Fla. | P | N | 220,000 sq. ft. | Spring 2003 | To be announced |
| Miracle Mile Coral Gables | Starwood Urban Retail Washington, D.C. | MU | RD | 39,400 sq. ft. | Spring 2003 | To be announced |
| Pier Park Panama City Beach | St. Joe Commercial Orlando, Fla. | M | RD | 200,000 sq. ft. | Spring 2003 | To be announced |
| Unnamed center Lynnhaven | Regency Centers Jacksonville, Fla. | N | N | 63,870 sq. ft. | August 2002 | Publix |
| Center Type: S=Strip Center, N=Neighborhood Center, C=Community Center, M=Regional/Superregional Mall, P=Power Center, O=Outlet Center, L=Lifestyle Center, F=Fashion/Specialty Center, MU=Mixed-Use Development. Project Type: N=New Project, E=Expansion, RN=Renovation (updating look, refacing, common area or amenities upgrade), RD=Redevelopment (demalling or remerchandising). Completion Date*: Subject to change. Existing/Planned GLA (Expansion GLA): GLA=Gross Leasable Area. TBA=To be announced/unavailable. | ||||||