Kirk D. Olson and Drew Kristol are senior associates in Marcus & Millichap’s Miami office.
What area is your expertise?
• Miami-Dade County retail properties.
What trends do you see presently in retail development in your area?
• The only major retail developments in the area are those that were started prior to the market correction that occurred in fall 2008. There is an increase in vacancy rates — anywhere from 5 percent to 15 percent — in Miami-Dade County. Many shopping centers that have not had vacancy issues in the past 5 years are now experiencing vacancies for the first time. Owners are lowering their rents to keep current tenants and are not generating much interest from leasing signs and advertisements.
What type of retail product is doing well in your area?
• Centers in prime locations remain relatively well occupied compared to areas that have been harder hit by the softening economy. Even though the spending power of shoppers is less due to the economic downturn, Miami-Dade County is very dense and there are too many people shopping for there to be mass vacancies. Dollar stores are still in expansion mode, as are some restaurant chains, Applebee’s and Burger King for example, drug stores, and discount clothing stores such as Ross Dress for Less.
What retailers are new to your area?
• There are few new tenants entering the area. However, Five Guys Burgers and Fries has opened locations in West Kendall, Miami and South Beach during the last few months.
Who are the active retail developers in your area?
• Berkowitz Development, Woolbright and Ferro Development are a few of the retail developers in Miami-Dade. As previously touched on, the active retail developers are those who were in the middle of build-out when the market crashed in 2008. Their only option was to go forward with their centers with the hopes of leasing enough space to pay their construction loans.
Please name one or two significant retail developments in your area.
• London Square, located on the SE Corner of SW 137th Ave and SW 120th Street and next to the Tamiami Airport, is a significant project being built by Woolbright Development. London Square is a 450,000-square-foot project anchored by T.J. Maxx/Homegoods and Ross Dress for Less, and shadow-anchored by Costco. The area surrounding the project features numerous new housing developments. This center should help increase traffic and activity in the submarket and attract tenants to nearby newer-construction office and industrial properties.
Alton and 5th Street on South Beach is a 200,000-square-foot retail center being developed by Berkowitz Development Group. Featuring tenants such as Publix, Best Buy, Petco, Staples, TJ Maxx and Ross Dress for Less, the projected completion date is in late 2009. This development will bring more foot traffic to the 5th Street retail corridor, which has typically been a driving street. We should see a change in traffic flow as more vacationers come west from Ocean Drive to Alton Road to shop. In addition, other 5th Street retailers will benefit from the parking that will be added to the immediate area.
Where is the majority of development taking place? Why is this area doing well?
• Because many land owners are unwilling to sell at market prices, lenders are tightening their criteria for lending capabilities and tenants are not expanding, no Miami-Dade area is doing particularly well in terms of development.
There has been some development in the West/Southwest Dade submarket where the most population growth has occurred over the past decade. We also see some “shadow-anchored” projects surrounding new “anchor” tenants such as Target, Wal-Mart and Publix.
What area do you expect to be the next big retail development market? Why?
•When the thousands of vacant condo units are eventually absorbed in the Downtown/Brickell areas, residents will need additional retail to serve their needs. However, it may take several years before those units are absorbed through the rental and/or condo sales markets.
Please describe the retail leasing activity in your area.
• There are very few national or local tenants expanding today. Most retailers are focusing on operating their current locations and closing their least productive locations. A few that are expanding include, Family Dollar, Dollar Tree, Dollar General, Five Guys and Firehouse Subs. Many landlords are granting concessions or reductions in rent in order to keep their tenants and avoid a critical mass of vacancy at their properties. The slow leasing activity and sluggish store sales have contributed to lower asking and effective rents across the board.
What major leases have been closed recently?
• A couple of the largest lease signings included Kohl’s at Homestead Pavilion and Sony BMG Entertainment at Mayfair in Coconut Grove.
Please give a measure of retail vacancy rates and available sublease space.
• Employment losses and an expected decline in tourist volume will weigh on property performance this year, resulting in a 140 basis point rise in the vacancy rate to 8.1 percent. In 2008, when completions were more significant, vacancy rose 160 basis points. The amount of vacant sublease space in the Miami-Dade County market has trended up over the past four quarters. According to CoStar, at the end of the first quarter 2008, there were 44,550 square feet of vacant sublease space and currently there are 247,412 square feet vacant in the market.
What types of retailers should look into your market in the coming year? What type of retail is needed?
• Modern QSR or casual dining restaurant concepts such as Five Guys or Chipotle Southwest Grill should look into the market. Necessity-based retailers such as coin laundries, dollar stores, convenience stores and barber shops/hair salons are needed.
Would you like to make any additional observations about the retail market in your area?
• Until employment rates and housing prices stabilize and begin to grow, most retailers will continue to experience sluggish sales figures. Many tenants will not be able to afford the annual rental increases scheduled in their leases and landlords will have to give concessions or face increased vacancy in the softening market. Rental rates should drop slightly during the next several months before recovering after absorption picks back up and the overall economy recovers.