South Florida becoming pinnacle of strip-center development
By Marilyn Bowden
For investors and developers, strip centers catering to the immediate neighborhood remain hot properties, brokers say
"All across the country, retail across the board is very much of interest to investors," said Richard Tarquinio, a first vice president at CB Richard Ellis. "For the first five months of this year, there have been more sales of smaller retail centers than of those that are anchored - and the prices, especially for some of the newer ones in prominent areas, have been very aggressive, up to $400 a square foot."
Prices are dictated by the lease rates the centers have been able to demand, he said. "Any time you're in a market like ours where the vacancy rate is very low in many of the submarkets, where there are land constraints and big boxes are out there looking, more than likely, rents will increase."
H. Bradley Peterson, vice president of Trammell Crow's East Coast Retail Investment Team, said Miami is one of the hottest retail markets in the US.
"Consistently, about 10% of annual retail investment sales transactions occur in the state of Florida," he said - second only to California, which captures 18% of the volume nationally. "About 60% of that is in South Florida."
And with projections showing that a fifth of Baby Boomers will retire to South Florida, Mr. Peterson said, "investors are salivating. Strip centers are on everybody's radar. Those who have owned in New England or the Midwest are trying to get into higher-growth markets, and the pinnacle of that is South Florida."
Because everything is going vertical, he said, density is strong and will get stronger.
"The barriers to entry for one- or two-story centers is high, so owners of strip centers are unlikely to face new competition," Mr. Peterson said.
But for developers who are able to find a good site, the rewards are still great, said Matthew Adler, executive vice president of The Adler Group, which has been building strip centers in Florida for the past few years.
"It's getting more difficult with the costs of land and construction," he said, "but if you do have the right site, there is no question that it's an absolutely great product. There's so much residential growth, and there's a finite distance people will go for their basic needs."
While strip centers are not anchored by a large grocery store, he said, "many now have small national lifestyle chains such as Starbucks or Coldstone Creamery as tenants that are popular destinations these days and bring in people.
"They want proximity to their customers, so location is very important to them."
The need for strip centers serving their neighborhoods "will never go away," said Oscar Rivera, managing partner at law firm Siegfried Rivera and president of the Florida Shopping Center Political Action Committee. "They're a necessity of life. Retail always lags a little behind residential, so with all of the new development going in, especially to the south toward Homestead, retail should be doing very well for the next couple of years."
Centers that are income-producing properties and are being offered at reasonable cap rates are attractive to many types of investors, Mr. Rivera said, from individuals and small groups to larger investment groups and real estate investment trusts.
Mr. Tarquinio said they're a popular product for investors looking to do 1031 exchanges. "There's still a tremendous amount of interest in strip centers," he said, "and a lot of investors are looking for them."