South Florida, the densely packed grid squeezed between the Atlantic Ocean and the Everglades, is back on the priority list of retailers that, until recently, were content to hang out on the beach and wait for more inviting waters, so to speak. Over the past few months, the list of the most active newcomers has included Toys “R” Us, Babies “R” Us, Ross Dress for Less, Sports Authority and Dick’s Sporting Goods, just to name a few.
And while the region is still a long way from the blistering pace of activity that was evident during the housing boom, there are other positive signs of life. A year and a half ago, similar to most major cities across the U.S., shopping center landlords in Miami and South Florida were fending off an overabundance of aggressive rent requests from retailers. All too often, in an effort to grasp some security for the future, many had to give in to retailers’ insistent demands for relief.
In fact, many chains managed to lock into long-term leases at low- to mid-double-digit rent amounts in class “A” centers that used to command $25- or even $30-per-square-foot. During the past few months, however, the flood of rent-reduction requests has tapered off dramatically, even as chains like Dollar Tree, Chipotle Mexican Grill, Burlington Coat Factory, ALDI and Save-A-Lot have flocked to Dade, Broward and Palm Beach counties.
In February, the much-admired grocer Fresh Market opened its first store in Fort Lauderdale, adding to its presence in Broward County and creating quite a buzz. During the past 3 years alone, Dollar Tree has closed more than 40 deals in the market. And, in its bid to give Best Buy a run for its money, hhgregg opened about a dozen stores by the end of 2011.
The healthy appetite of the restaurant sector is another good omen. In recent months, the likes of Taco Bell, Burger King, McDonald’s, T.G.I. Friday’s, Golden Corral, Smashburger and Five Guys Burgers & Fries have all appeared equally bullish on South Florida. Banks such as TD Bank, PNC Bank and Chase, along with supermarkets Publix and Aldi, have also battled hard for market share and space.
There is also talk of new retail projects in Miami. In particular, the proposed Skytown development at I-95 and Northwest 8th Street will add 400,000 square feet of retail, most likely with power center tenants like Target, Old Navy and T.J. Maxx. And while the Florida Legislature has killed — for now — a proposal that would allow so-called “destination casinos” in South Florida, many observers wager that the Genting Group’s massive proposed project in downtown Miami will move forward (sans poker tables and slot machines).
With architecture more reminiscent of Dubai than Miami, the $3 billion project reportedly will occupy some 30 acres, with 5,500 hotel rooms, 200,000 square feet of planned high-end retail and a 3.6-acre outdoor lagoon that would be equivalent to 12 Olympic-size swimming pools. All of this would be surrounded by natural sand beaches. It is hard to imagine anyone planning such an ambitious project back in 2008 or 2009.
Given its longstanding ties to Latin America and popularity with international tourists, the Miami market is hardly subject to the typical ups and downs of the U.S. economy alone. Whenever countries like Brazil and Peru experience robust growth, as both most certainly have since 2009, Miami reaps the benefits. In particular, International visitors often spend their money at hotspots like Aventura Mall or South Beach’s upscale Lincoln Road shopping district. Of late, Brazilian investors have been snapping up attractively priced condo developments all over the city. With Peru’s economy estimated to grow a whopping 5.5 percent this year, it is a good bet the influx of foreign capital will continue to play a positive role here.
Since it is still difficult to obtain financing and refinancing, redevelopment in South Florida continues to suffer. This is part of the reason loan workouts and outright foreclosures of retail properties have occurred — case in point, the troubles of West Palm Beach’s CityPlace, the shopping, dining and entertainment destination that went into foreclosure in part because of reduced rents. But while the recession also forced Palm Beach Mall into foreclosure, this property has been acquired with plans for a 400,000-square-foot, discount-oriented redevelopment. Two anchor spots, one of them a former Dillard’s, are still available at Boynton Beach Mall, which highlights the challenge many regional malls face amid the general pullback of the larger anchors.
Retail success in this market tends to be all about population density. In Dade County, performance has been strongest in Dadeland, a neighborhood in the Miami suburb of Kendall, and Coral Gables, the area southwest of downtown. In the typical major metropolitan market, population density is easy to predict—it will be strongest at the bull’s eye in the center of the dartboard (downtown) and weakest at the outer edges (the exurbs). In the South Florida market, where you can drive from Palm Beach to Miami and hardly know you have left one county for another, the exurban phenomenon of empty shopping centers built in advance of ill-fated residential can hardly be found. This is reflected in South Florida’s relatively healthy retail vacancy rate, which decreased from 6.7 percent at the beginning of 2011 to 6.2 percent at the end.
The renewed activity of today is just the beginning. Strong population density and limited supply mean this dynamic market will continue to attract even more national retailers. After all, they finally believe it’s safe to get back in the water.
— Bill Rotella is an X Team International partner and president of Fort Lauderdale-based The Rotella Group.