Miamidades Retail Development Doesnt Need A Miracle But A Little Luck And Reentry Of National Players Would Help
Written by Risa Polansky on March 26, 2009
By Risa Polansky
With big-name retailers closing doors nationwide and recession keeping consumers from consuming, it’s unlikely Miami will see much movement on the retail front this year, industry players say.
Tight credit markets are expected to be a roadblock for new development, and a downturn in tourism could put a drag on the local retail market.
Though visible, high-traffic spots on well-known corridors will never fail to fill, experts predict an uptick in overall vacancies this year.
Expect also a deflation of rental rates, they say, and wheeling and dealing between landlords and tenants to keep spaces filled.
In a crumbling economy, "we’re seeing the obvious things you would expect," said Jonathan Carter, associate director in Cushman & Wakefield of Florida’s Miami office. "We’re seeing less velocity of retailers demanding space. A lot of the national retailers are on the sideline."
Vacancies in the Miami-Dade retail market rose from 3.9% to 4.7% between third and fourth quarters last year, according to a yearend report by commercial brokerage Colliers Abood Wood-Fay.
That’s nearly 2.6 million square feet of empty retail space locally in a market of struggling retailers.
Major players such as Linens ‘N Things and Circuit City closed doors to hundreds of stores nationwide in recent months, including the Shops at Midtown Miami center.
Though Shops at Midtown representatives long anticipated a 2009 opening of a JCPenney at the Wynwood complex, the retailer last year chopped nationwide expansion plans and is not planning a new Miami location this year.
In this economy, expect more of the same, said Aracibo Quintana, a Miami-based senior vice president for retail outsourcing with Jones Lang LaSalle.
"The biggest trend you’re going to see is you’re going to see some retailers starting to file," he said. "That really is going to put some developers and landlords in very precarious positions."
Already, local shopping centers such as Midtown Miami have lost existing and planned tenants.
The trend also poses problems for developers hoping to build new projects.
"With the lack of big-box retailers in the market able to expand, and even some going out of business," Mr. Carter said, "it’s tough for developers to get the anchor tenant that helps kick off financing for their project."
Some stores on the Way
Still, major big-box projects that developers began before the economy took its downward dive are expected to open this year, complete with big-name tenants.
Fifth & Alton, set to be the first development of its kind in Miami Beach, is 93% leased with the first store openings expected in July, developer Jeff Berkowitz said.
Publix, Best Buy, Staples, Ross Dress for Less, TJ Maxx, PETCO and Vitamin Shoppe are set to open in the 185,000-square-foot project.
"I think we’re blessed to have selected retailers who are doing relatively well in this environment," he said.
Restaurants or smaller retailers are meant to fill the project’s remaining space, less than 12,000 square feet.
"We’re talking to a lot of people," Mr. Berkowitz said, acknowledging "it’s a difficult economy."
Miracle Marketplace, a 250,000-square-foot Coral Way project, is also on the hunt for tenants to fill its remaining 30,000 square feet.
"We’re looking at the whole retail spectrum," said Daniel Cetina, executive vice president of Coral Gables-based Talisman Cos. "It could be multiple tenants, it could be one tenant."
The once-defunct shopping complex, last labeled Paseos, is set to be home to Bed Bath & Beyond, Marshalls, Designer Shoe Warehouse, Ulta and PetSmart, among others.
"There will be a string of openings during the summer," Mr. Cetina said.
Progress continues also at The Palms at Town & Country in Kendall.
The second phase of the retail redevelopment project — 400,000 square feet of open-air retail — began in late October.
Kohl’s, Nordstrom Rack, Health & Muscles Nutrition, Super Smoothie and U2 Wireless are to set up shop there, along with smaller specialty shops.
New projects doubtful
Though already-rolling projects are expected to continue moving forward, other planned retail centers are likely to be put on hold until credit markets loosen and retailers shift back into growth mode.
"Despite occasional groundbreakings, construction activity is expected to decline significantly in 2009 as the credit markets remain tight and consumers cut spending," the Colliers Abood Wood-Fay yearend report says.
Now, "there’s no new pipeline. Retailers on a national level are planning for 2010," Mr. Quintana of Jones Lang LaSalle said.
Mr. Berkowitz, who is developing Fifth & Alton on South Beach, just put on hold plans for a big box complex in the heart of Coral Gables, citing retailers’ hesitancy to commit to new stores in a troubled economy.
He’d been talking with numerous national retailers about the project, set to rise at a former Ford dealership site on South Dixie Highway between Ponce de Leon Boulevard and LeJeune Road.
The hope was to begin construction within a year, year and a half, he said.
Now, the project could be a year or two behind.
"My sense is that the retailers are not going to be willing to pull the trigger until the economy turns," Mr. Berkowitz said. "I don’t see any new projects in the near future."
Rick McAllister, president and CEO of the Florida Retail Federation, predicts the downturn will continue through this and next year.
"I think what you’re going to see over the next 24 months is you’re still going to see the underperforming stores lose. You’re probably not going to see as much new growth," he said. This doesn’t mean store openings will grind to a halt, "but it will be slower."
Top Spots Still on Top
Despite grim market conditions, retailers still covet the county’s prime locations, the experts say, meaning areas such as Miami Beach will continue to see activity through the downturn.
"A good corner is always a good corner, and we’ve seen that hold up," Mr. Carter of Cushman & Wakefield said. "The best spaces lease."
Some of these spaces include storefronts in high-profile malls such as Dadeland and Aventura, said Cynthia Cohen, president of retail strategy consulting firm Strategic Mindshare.
"There are malls in South Florida that can still lease their space," she said — some with waiting lists of retailers hoping for spots. "The famous saying about retail is it’s all about real estate. There are still certain places where there will be no vacancies."
Aventura has the lowest retail vacancy at 0.6%, according to retail data Gary M. Ralston, president of Florida Retail Development Inc., presented at a forum in January.
Downtown Miami has one of the highest vacancy rates, 8.3%, and Coconut Grove holds the top spot at 8.7%.
More stable areas: Coral Gables, where vacancies sit at 3.4%, and the Coral Way corridor, with 1.6%, Mr. Ralston’s data shows.
Though Wynwood’s Midtown Miami lost two major tenants — Linens ‘N Things and Circuit City — the project still counts among the county’s most strategically located, Mr. Quintana of Jones Lang LaSalle said, calling the development "a success as a project."
The store closings came as part of national economic fallout, he said, and don’t speak to Midtown’s viability.
Officials at Developers Diversified Realty, which developed the Midtown project, are optimistic about filling vacant space.
"Despite of the economy, interest for available space at the Shops at Midtown Miami is strong," said Marc Hays, senior vice president of leasing for specialty centers, in an e-mail.
Lime Fresh Mexican Grill, a homegrown chain, signed on for 2,000 square feet, and "we are actively working with a number of retailers and restaurants," he said.
The project’s existing tenants and strategic location should help Midtown stay ahead of the economic curve, Mr. Hays predicted.
"We’re confident that we have assembled an excellent mix of retailers and restaurants in an underserved area that is attractive to both local and national retailers and restaurants," he said. "Our outlook is very positive."
Wheeling and dealing
Rental rates at major Miami-Dade locations remained steady during the second half of 2008, with South Beach destinations such as Lincoln Road yielding annual rates of $130 a square foot, according to a year-end report by Cushman & Wakefield of Florida.
On "Class B" thoroughfares such as Collins Avenue, Miracle Mile and Biscayne Boulevard, rental rates declined during the third and fourth quarters.
Annual rates were $100 a square foot on Collins, $40 on the Mile and $30 on Biscayne.
"Current economic conditions have led to decreased retail sales and tenants’ inability to pay over-market rents," the report says.
A resulting trend, Mr. Quintana of Jones Lang LaSalle said: "Everyone is trying to save money… you’re seeing a lot of retailers calling landlords and saying "look, we really need to save some occupancy costs here.’"
Common requests include paying less per square foot, or extending a lease but for less space.
"More and more, landlords are getting those phone calls," Mr. Quintana said.
Coveted corridors will likely see less of the emerging trend, Mr. Carter of Cushman & Wakefield said.
"A lot of tenants approach their landlords preaching that the economy is bad and the landlord needs to do something for them," he said. "However, for the top spaces and the top corners, there are still tenants competing for those spaces."
In his presentation, Mr. Ralston advised landlords to help tenants make upgrades to their locations, seek opportunities with franchisees and return to the basics in leasing and management practices.
Some see the deflation of local rental rates as a healthy return to post-boom prices.
Rates in areas of Miami-Dade have decreased 15%-25%, said Paco Diaz, senior vice president and retail specialist with CB Richard Ellis.
But in recent years past, he said, "the rates increased tremendously in a very short period of time, so [now] we’re going back to basics."
The tourism factor
As far as how retailers will fare in Miami-Dade this year, one key indication is tourism, analyst Ms. Cohen said.
"A lot of what you have to look at in South Florida is not just what the residents are doing but how full the hotels are, because the visitors are a very, very significant piece of the retail economy," she said.
Tourism experts predict a down year.
William D. Talbert III, president and CEO of the Greater Miami Convention & Visitors Bureau, last month projected a 12% drop in Tourist Development Tax collections through the balance of the fiscal year.
The tourism factor "does affect retail considerably," Ms. Cohen said.
But all things considered, South Florida’s tourism industry may be a boon during tough times, said Mr. McAllister of the Florida Retail Federation.
"Compared to other areas of the state, I think Miami-Dade and Broward will probably be doing better," he said. "They probably will recover a little faster, especially if we can keep those visitors coming to that area."