In the post-recession economy, some states that were hurt particularly hard have seen turnarounds of retail development, leasing and brokerage. Florida is one of them.
In the post-recession economy, some states that were hurt particularly hard have seen turnarounds of retail development, leasing and brokerage. Florida is one of them. Shopping Center Business spoke with nearly two dozen developers, owners, brokers, municipalities and agents in the Sunshine State. We learned that after several turbulent years, banks are now lending, shovels are now digging and tenants, especially national ones, are moving in to the land of oranges and Disney.
One of the most recurring themes mentioned in these conversations is the influx of grocery-anchored centers in the Florida retail market. Florida-based Publix Super Markets is not only leasing anchor spaces in centers throughout the state, but also purchasing retail centers it might already be the anchor of, or will move into, driving down operating costs.
Fast-casual dining continues to increase its presence in Florida, much like the rest of the country, opening in smaller spaces in retail centers of all types. Concepts like Tijuana Flats, Chipotle, Corner Bakery Café and more continue to open locations throughout the state.
Jacksonville is the most populous city proper in Florida, as well as the largest city by area in the continental United States. Located 25 miles south of the Georgia border and nearly 350 miles north of Miami, it saw growth in both retail development and leasing in 2013 and 2014 to-date. In its MarketView second quarter analysis, retail services provider CBRE reported that Jacksonville closed the quarter with a vacancy rate of 9.6 percent, 90 basis points less than that quarter in 2013. Marcus & Millichap reported that vacancy should drop 70 basis points this year to 8 percent.
The entire Jacksonville market’s average asking lease rate climbed $0.10 per square feet from the second quarter of 2013, to $14.47. Marcus & Millichap placed this figure in 2014 at $12.72 per square foot.
According to Carrie Smith, regional managing partner of Franklin Street, demand in Jacksonville is so high that retailers are now leasing space in Class B and C properties due to a shortage of Class A space. “Across the board, in Florida, Class A Properties are at or near 100 percent occupancy today,” she says.
On the investment sales side, Drew Fleming, a senior vice president with Cassidy Turley, says, “Buyers are looking for grocery-anchored centers right now.”
Investment sales activity increased in Jacksonville in 2014’s second quarter due to several large property sales. The original developer of the market’s top center, St. Johns Town Center, Ben Carter Properties, sold its 50 percent ownership interest for $375 million. Simon Property Group retained its 50 percent ownership interest and will continue to manage the approximately 1.2 million-square-foot center. “Anybody new in our market and trying to get in, that’s where they’re trying to get in,” says Collis McGeachy, a vice president with CBRE.
As part of the purchase of a portfolio of grocery-anchored centers, Phillips Edison-ARC REIT purchased Deerwood Lake Commons, a 67,000-square-foot neighborhood center in the Southside submarket, and St. Johns Commons, a 71,000-square-foot center in St. Augustine. Deerwood Commons had a purchase price allocation of $12 million, or $178 per square foot, while St. Johns Commons had a purchase price of $13 million, or $183 per square foot.
Home décor retailer Garden Ridge purchased the former Super Target in the Orange Park submarket. Target Corporation sold the 175,000-square-foot property to Garden Ridge for $5.6 million, or $32 per square foot.
In Gainesville, Florida, Celebration Pointe will open in spring 2016, bringing new retailers and restaurants to the home of the University of Florida. The new $170 million development will have approximately 300,000 square feet of retail, a wide range of dining options and close to 1,000 residential units. A boutique hotel and 300,000 square feet of office space are also anticipated at full build-out. Atlanta-based RaCo Real Estate Advisors is one of the partners in the project.
A trend that Fleming has noticed throughout the Southeast, when it comes to REITs and larger shopping center owners, is the disposition of non-core assets. This is creating a market and creating opportunities for capital market buyers to snatch up assets, he says. “That is most of the opportunity in the market right now.”
Jacksonville Development and Leasing
Many projects in Jacksonville currently under construction have already been entirely pre-leased, lending to the high demand for retail space in the market.
Some of the most aggressive categories for retail leasing, according to Smith of Franklin Street, are fast-casual dining and fitness concepts. “It seems like we’re seeing a new gym open every month,” she says.
St. Johns Town Center will open a third phase in the third quarter. Retailers who will be joining the development include Nordstrom, The Disney Store, Yankee Candle, Model Citizen, as well as 31,000 square feet of retailers who are new to the market, including Arhaus Furniture, Boston Proper, Free People and Swim n Sport.
Throughout Florida, Jacksonville-based developer Regency Centers has built, acquired and redeveloped centers that have staying power, often anchored by grocery chains.
In Regency’s hometown of Jacksonville, Brooklyn Station by Riverside will open this November and be anchored by The Fresh Market. Set to open in November, the center will reflect the gentrification and emergence of an art scene in the area.
Regency is currently building its first Miami ground-up retail development called Fontainebleau Square, a 320,339-square-foot center located 10 miles west of downtown. Retailers liker Publix and Target will anchor the center. The anchors will open in October of this year. In Ponte Vedra, Regency is now pre-leasing at its Publix-anchored Nocatee Town Center’s second phase of development.
During the recession, fast-casual restaurants were slow to expand in Jacksonville, but are now signing leases across the city. Concepts such as Chipotle, Tijuana Flats, Firehouse Subs, Corner Bakery Café and Panera have all opened locations in recent months.
Franklin Street’s Smith says that franchising is back in Jacksonville, and multi-unit operators of retailers such as Great Clips or Jimmy John’s are expanding aggressively in the market, now feeling comfortable enough to open new locations. “Two years ago, you didn’t have many people signing up to open a business,” she says. “Franchise-driven concepts are very active.”
St. Augustine, a Jacksonville submarket, experienced the greatest amount of retail absorption so far this year, due largely to the occupation of approximately 50,000 square feet by Staples, Ulta and Ross in the former Kmart space at the Seabridge Square development. Grocer Aldi will move in to the remaining 23,000 square feet at the development in the third quarter.
St. Augustine also reported the highest asking lease rate in the second quarter, $19.70 per square foot, as well as having the lowest vacancy in all of Jacksonville’s submarkets, 5.3 percent, according to CBRE.
In the Intracoastal West submarket, the 110,000-square-foot Atlantic North center will soon feature a 27,775-square-foot Earth Fare specialty grocery anchor, built by Target Contractors. Belk Department Store will begin this year building a 95,000-square-foot location adjacent to the specialty grocer.
A former Food Lion grocery at Wilson Square, also on the Westside, will be redeveloped by Gatlin Development Co. into an approximately 40,000-square-foot Walmart Neighborhood Market. Trader Joe’s is currently under construction and will occupy 12,500 square feet in the Beaches submarket.
Further south, in Daytona Beach, Jacoby Development and International Speedway Corp. are developing the 1.1 million-square-foot ONE Daytona mixed-use and entertainment project adjacent to the Daytona International Speedway. Bass Pro Shops and Cobb Theatres are two of the major tenants at the project, which is one of the most anticipated new developments in the country. The McGarey Group is handling the leasing for the project.
As retail demand in Jacksonville and other areas of North Florida grow, new development, as well as the renovation of older shopping centers, will continue to increase. The presence of fast-casual dining throughout the country will increase the demand for smaller retail spaces, possibly sparking development as space depletes.
Cities in Central Florida such as Tampa, St. Petersburg and Orlando also continue to see growth due to retail development and leasing. In addition to the purchase and construction of grocery-anchored centers and spaces for fast-casual dining, these markets support retail related to tourism drawn to the nearby beaches or Orlando’s tourist attractions.
In 2014, the Tampa Bay market has seen positive net absorption, totaling 194,512 square feet in the second quarter. A large portion of this absorption was due to the opening of fitness centers, such as Planet Fitness’s new 21,500-square-foot space, as well as a 147,850-square-foot Super Walmart in the Northeast Hillsborough submarket.
The average rate of asking rents in the Southeast Hillsborough submarket is now $22.66, keeping this area at the top of the list of submarket rents, according to CBRE. Average asking rents in the Tampa Bay retail market at large in the second quarter of 2014, however, decreased to $14.35 per square foot and vacancy rates lingered at 8 percent. Nonetheless, six new development projects are planned for the market, totaling nearly 832,000 square feet.
Brian Bern, a senior director with Franklin Street’s Tampa office, says the market there is so aggressive that the existing centers are filling up and it’s a squeeze for tenants to get into remaining open spaces. “It’s become a landlord’s market,” he says.
Bern also noted the numerous sporting good chains have begun to expand throughout central Florida and the rest of the state, including Dick’s Sporting Goods, Sports Authority, Academy Sports, Gander Mountain and Bass Pro Shops.
In nearby St. Petersburg, the city’s economic development department has worked to make the market welcoming to retailers seeking to establish their brand there. “We’ve made it more apparent that we support business needs,” says Kimberly Bailey, an economic development analyst in the department.
St. Petersburg attempted to bring a Trader Joe’s to market for seven years, and its opening substantiates the ability of the marketplace for other retailers to come in, says Bailey. The city is constricted by water, however, so much of the retail activity there occurs in mixed-use ground-level spaces to maximize usage of space. “We want to make sure we don’t have any dead zones,” she says, “so we make sure new development complements what happens on street-level retail.”
Dave Conn, a senior vice president at CBRE in Tampa, remains bearish on the retail market there. “Economically, we took it on the chin hard, but we’re coming back strong,” he says. Conn believes retail sales are up in Florida, but with “virtually no new construction since 2008,” he says, the market is shifting from a tenant’s market to a landlord’s market.
“We’re on the cusp of new development,” Conn says. “I don’t think we’re going to see anchor-tenant rents back to where they were pre-recession for a little while yet.”
In the first half of 2014, nearly 20 retail properties in the Tampa Bay market sold for more than $100 million. Publix Super Markets purchased the 109,756-square-foot Shoppes of Apollo Beach for $12.8 million, as well as the 63,374-square-foot Kingsway Crossing for $8.2 million. According to Mitchell Rice, CEO of RMC Property Group, “A large motivation for retailers in Florida to own their property is because it eliminates the 7 percent sales tax on rent and lowers the occupancy cost for stores.”
RMC continues to develop and sell Wawa locations throughout the state. According to Bobby Eggleston, CFO of RMC, there’s a large demand still from investors. “People see the headlines about the developments we’re building and know that we’re active in the development of the single-tenant credit market, and they call to buy those properties.”
Chris Bowers, a retail broker at Eshenbaugh Land Company, focuses mainly on urban infill and areas where the rooftops may have got ahead of the retailers. Centers that didn’t survive once the proposed residences didn’t make it online can now be redeveloped and renovated.
According to Bowers, the primary retail investment in Tampa since the recession has been single-tenant gas stations and discount stores, and Eshenbaugh has brokered sales between Dollar Generals, Circle K locations and Wawa stations.
A South American investor recently acquired Shoppes of Spring Hill, a 10,880-square-foot Class A center, from developer Gulfstream Spring Hill LLC, for $4 million. The center is 100 percent leased to AT&T, Mattress Firm, GameStop and Sweet Frog Yogurt, and is shadow-anchored by a Walmart Supercenter.
As Class A properties in the Tampa Bay market fill up, investors as well as retail brokers will look more and more to the Class B and C spaces, improving them via renovations or other value-adds.
In 2013, a record-breaking 59 million visitors traveled to Orlando, many visiting the amusement parks operated by Disney, Universal Studios and SeaWorld.
In Orlando, according to CBRE, the retail vacancy rate sits at 7.1 percent, with the average asking rental rate $13.95 per square foot, up $0.11 from the first quarter of this year.
According to David Barilla, assistant director of the Downtown Development Board/Community Redevelopment Agency, downtown Orlando has grown more desirable for residential use over the past decade, with more than 80 percent growth in units. Given the adage that “retail follows rooftops,” it was inevitable that retail has caught up with that, and now downtown hosts retailers such as grocery and movie theater chains.
Much of the work completed by Cuhaci & Peterson, an Orlando architectural firm, is redeveloping and retrofitting grocery-anchored centers because, as chairman Lonnie Peterson notes, there’s not a lot of greenfield land available in Orlando.
The firm counts among its regular clients Walmart Neighborhood Market, Wawa, Winn-Dixie, Publix, Whole Foods, Fresh Market and others. One of Cuhaci & Peterson’s recent jobs in Orlando is the redevelopment of the 40-year-old Fashion Square Mall. “We’re bringing a new energy to an older mall,” Peterson says.
During this most recent quarter, a positive net absorption rate of 216,072 square feet was recorded in Orlando, largely due to leasing in the Northwest Orange County submarket, according to CBRE. Retailer Roses leased 58,030 square feet of space at the Park Promenade Shopping Center, and Falls Discount Stores leased 41,980 square feet in the Highland Lakes Center. Roses also committed to 15,000 square feet of space in the Northeast Orange County submarket at the Forest Edge Plaza.
Bobby Palta, a vice president with CBRE, says he is as busy with retail leasing as he’s ever been. “We might be more active than pre-recession,” he says. “Florida always tends to have lower lows and higher highs than the rest of the country. We might take a bit longer to come back, but we’ve come back due to a lot of tourism.”
Palta mentions the Harry Potter amusement park ride and other new attractions that draw crowds from around the globe to Orlando, who then spend at retail outposts.
Despite being one of the best performing centers in the market, Downtown Disney in Lake Buena Vista will undergo a transformation over the next several years to become Disney Springs, a 1.1 million-square-foot entertainment, retail and dining center for the area’s visitors and residents. The development will incorporate five themed areas and add more than 350,000 square feet of new space to the center. Mitch Friedel, executive vice president of Newmark Grubb Knight Frank, is handling the leasing of the project for Disney.
Of all the Orlando submarkets, Northwest Orange County and Seminole County saw the most significant sales activity this year. Highland Lakes 1 LLC purchased the 53,916-square-foot, vacant former Service Merchandise property in Northwest Orange County for $1.2 million. The Jaffe Corporation purchased the 64,688-square-foot Parkway Plaza in the same submarket for $8.5 million.
The highest priced retail sale in the Orlando retail market this year occurred in Seminole County, where the 100,000-square-foot Lake Mary Village center sold for $27 million.
According to members of Colliers International’s Orlando office, several projects, including the new SunRail commuter rail system and the Orlando Eye Ferris wheel on International Drive, have spurred retail activity throughout the Orlando metro area in downtown and in suburbs such as Winter Park.
Orlando’s NBA basketball team, the Magic, is seeking approval for a $200 million downtown complex. This project would include 42,000 square feet of retail space. Based around the Amway Center arena, the project would create what Barilla calls a “critical mass” of retail.
In Kissimmee, Williams Company Southeast has broken ground on The Crossroads at Osceola Corporate Center, a $30 million, 427,000-square-foot shopping center developed by Tupperware Brands Corp., O’Connor Capital Partners and Florida businessman Peter Bergner. Anchors include a 56,000-square-foot Hobby Lobby that will open this October and a 35,500-square-foot Havertys that will open this November. Other tenants will include Boot Barn, Cheddar’s Casual Café, Deals, Discovery Clothing, Marshalls/HomeGoods, Orange Theory Fitness, PetSmart, Ross Dress For Less and Starbucks.
The Was Group has announced a 120,000-square-foot expansion to the Lake Buena Vista Factory Stores in Orlando. Due to be completed in 2016, the expansion will complement a tenant roster that currently includes Tommy Hilfiger, Loft Outlet, Calvin Klein, Nike, Aeropostale, Reebok, Gap and more.
According to the CBRE MarketView report, Orlando has one of the fastest growing economies in Florida, and its tourist attractions ensure that it will maintain an edge over other Florida markets when it comes to retail development and retail leasing.
Often thought of as its own distinct region, separate from the rest of Florida and the Southeast, South Florida has seen enormous retail development growth since the recession, owing to its beautiful weather and status as a gateway to Latin America.
The Miami MSA is already the seventh largest metropolitan area in the United States in terms of both population and area, and it’s only expected to grow. Estimates put the MSA’s population growth at 7 percent by 2018. The city welcomed 14 million overnight visitors in 2013, who spent nearly $23 billion.
According to Sabrina Meerbott of Continental Real Estate Cos., there’s one person in Miami-Dade County for every 85 visitors in terms of job creation. She believes consumer confidence is as high as it’s been since the recession and the large spectrum of socio-economic and ethnic groups allow for a broad range of retailers.
“You have high income living in close proximity to low income near any particular retail hub, so you can have a broad mix of retailers that provides something for everyone instead of everything for someone,” Meerbott says.
The Miami area is currently looking at more than 10 new developments with more than 1.9 million square feet currently under construction, according to the CBRE second quarter MarketView report. Large projects currently in development that are eagerly awaited such as Brickell City Centre, Miami Worldcenter andthe All Aboard Florida rail station center are boosting the profile of the once-downtrodden downtown.
Brickell City Centre consists of 565,000 square feet of retail currently under construction, in addition to a bowling alley, 622-seat theater, banquet hall, 263 hotel rooms, more than 1,200 apartment units and more. The project is being developed by Swire Properties, as well as the Whitman family, owner of legendary property Bal Harbour Shops.
Construction on Miami Worldcenter is expected by the end of the year. The development will span 28 acres and will include 1,200 residences, offices, Marriott Marquis Hotel & Convention Center and the Mall of Miami Worldcenter. Macy’s and Bloomingdale’s have signed on as anchor tenants. The mall will feature 765,000 square feet of restaurants, retail and entertainment, as well as 90,000 square feet along the 7th Street Promenade, which links the mall and hotel.
Florida East Coast Industries is developing a station for All Aboard Florida, the new passenger rail service that links Miami and Orlando with stops in Fort Lauderdale and West Palm Beach. The station, scheduled for completion in fall 2016, will feature 170,000 square feet of restaurant, retail and financial services.
Menin Development has been renovating and remodeling its two southern Florida centers in order to make them more modern. PGA Plaza in Palm Beach Gardens had its façade recreated, turning it from a 1970s center into a more modern center with a Mediterranean-style facade. The first Trader Joe’s location in Palm Beach County is now under construction there.
Another of Menin’s developments, Shoppes at St. Lucie West, is also receiving a re-do of its façade, as well as two new outparcel buildings under construction now. Soon Menin will be announcing an additional anchor, fashion-oriented, to complement its current anchors of Publix, Burlington Coat Factory and La Fitness.
According to Menin executive vice president Marc Yavinsky, the retail market is so strong in South Florida, the development firm is looking to acquire additional retail centers. The main factor they look for in deciding a potential property purchase is the land location. “If you have a property at a great location, you’re going to get activity from tenants across the board, whether they be national, regional, service or whatever,” Yavinsky says. “The best retailers are focused on the best location.”
Vacancy rates in Miami are at an all-time low, decreasing 20 basis points in the second quarter of 2014 to 3.9 percent. Paco Diaz, a vice president with CBRE says he has never seen the vacancy rate so low in his 38 years in the industry.
Average asking rental rates climbed to $40.35 per square foot in the second quarter of this year, $5.31 higher year-over-year. “This is definitely a landlord’s market,” Diaz says. “The rental rates are going up, up, up.”
Major retailers entered the Miami market in recent months, due in large part to the increase in tourism and visitor spending. Gap reopened in a 19,000-square-foot space on Lincoln Road in Miami Beach, sharing a space with performance apparel store Athleta and fashion retailer Intermix. Spanish clothing brand Zara also opened a 26,000-square-foot flagship store in what was formerly the historic Lincoln Hotel. Jacksonville-based Stein Mart opened its first store in Miami this year in a 36,000-square-foot space that formerly housed a Loehmann’s.
The historic luxury development, Bal Harbour Shops, will add a third anchor store, Barneys New York, while the current anchors Saks Fifth Avenue and Neiman Marcus will expand within the shopping complex.
Several significant retail building sales occurred in recent months. A New York-based company bought the 6,943-square-foot building at 720 Lincoln Road that houses an American Apparel location and Cache location. A retail building in Doral, Shoppes at MICC, sold for $19.4 million. Plaza del Rey Shopping Center in West Miami sold for $11.6 million.
Up and Away
The retail market in Florida continues to grow as consumer confidence and the housing market rebounds. Ground-up development remains minimal, but redevelopment of older properties continues to move ahead at a rapid pace.
— Scott Reid