The demand for retail space throughout Central Florida has been extremely high as new concepts are moving into the marketplace due to the mass exoduses from New York City and California. With the major population shift, we are running into the issue of limited supply to lease.
Vacancy rates are currently projected at 3.8 percent, which is approximately 100 basis points below the 10-year historical average. Vacancy rates are projected to meet the mid-4 percent range by the end of 2023 due to the expected completion of more than 700,000 square feet of retail space during the fourth quarter, according to research from CoStar Group.
Some developers are backing out of ground-up development deals due to the heightened labor and construction costs that every firm is experiencing. However, there are still some notable developments occurring in certain trade areas such as Minneola, Lake Nona, Apopka (Kelly Park) and Davenport, which are just some of the areas with projects expected to deliver in the fourth quarter of this year. These new ground-up projects require lessees to pay a higher rent to make these deals pencil out.
The current average asking rate in Orlando is $27.77 per square foot, well ahead of the National Index Rate of $24.25 per square foot. Rent growth in Orlando has remained healthy over the past year, so much so that it ranked No. 3 in the nation for year-over-year rent growth as of March 2023. Jacksonville, Fort Lauderdale and Tampa are also ranked in the top five for rent growth in 2023, according to CoStar.
Trade areas that are experiencing tremendous residential growth need retail to support the residents’ everyday needs. The Franklin Street Orlando team has been diligently sourcing new sites for these new-to-market retailers. A lot of the entrants are used to paying higher rents as they come from states where that is the norm, while local retailers are having sticker shock when hearing these rent quotes.
A few notable projects within these growing trade areas are as follows:
Hills of Minneola. This mixed-use project by Skorman Development is perfect for the growing market of Minneola. The project will be located adjacent to a new hospital campus and will have 64,000 square feet of retail space, a mixed-use component with 115,000 square feet of ground-floor office space and a 480-unit multifamily component on the top levels spanning 480,000 square feet. Other uses will include a grocery store and a five-story medical office building that will total 300,000 square feet. The project will also incorporate a 40,000-square foot brewery and food hall. Asking rates for the retail portion of Hills of Minneola are $52 per square foot, plus $8 triple-net-lease. TSCG is marketing the project.
Poinciana Lakes Plaza. TCII is developing a 240,000-square-foot power retail center in Poinciana, Fla. The lineup will potentially consist of the following anchors: a national grocer, Ross Dress for Less, T.J. Maxx, Ulta Beauty, Five Below, Burlington, Petco, America’s Best, Rack Room Shoes and Crunch Fitness. The outparcels will house a national breakfast concept, Bojangle’s, Outback Steakhouse, TD Bank, MD Now, Panda Express and Kiddie Academy. Poinciana will also have some small-shop space mixed into the project. Asking rents on the outparcel are $52 per square foot plus $8 triple-net and $37 per square foot plus triple-net for the inline small shop space. (The tenant lineup is subject to change.)
Cornerstone at Narcoosee. This 59,157-square-foot shopping center, which is being marketed by Crossman & Co., is to be delivered in the third quarter of 2024 and has already broken ground. This neighborhood center will cater to the new residents moving into the rapidly growing Lake Nona trade area. The project will consist of a 48,387-square-foot Publix and 10,770 square feet of small-shop space. Asking rates for the small shop space are $45 per square foot plus $6 triple-net.
As we navigate through the next 12 months, we are expecting to see several retail development opportunities arise. However, we may have some roadblocks due to the uncertainty of the 2024 presidential election and inflation.
Landlords are currently in a good position having little to no vacancy, keeping their shopping centers in high demand. With continued creativity and great relationships, we will be able to adjust to any headwinds thrown our way. That said, I believe we are currently in the early stages of a correction. With rents soaring and expected annual increases rising to 4 to 5 percent, we are either going to be considered the next California or level out. Only time will tell.
— By Mike Battery, Director of Retail Services of Franklin Street. This article was originally published in the August 2023 issue of Southeast Real Estate Business.