By Rochelle Broder-Singer | 8/10/2008
''Retail follows residential'' has always been a maxim in real estate.
And as housing prices soared and new condos multiplied, retail too saw glory days. In 2007, average asking rent at most retail shopping centers in Broward County grew for the fifth straight year. And in Miami-Dade County, retail rents hovered at nearly $30 a square foot in 2007, reports real estate services firm CB Richard Ellis.
But this year, the housing bust has put a big dent in consumer spending, and unemployment is up sharply. That means a dramatically changed retail real estate scene.
''Apprehensive,'' is how Stephen Bittel, chairman of Miami Beach-based real estate developer, broker and manager Terranova Corp., puts it. ''You've got everyone -- developers and landlords on one side and tenants and banks on the other -- fearful to commit capital to anything new,'' he said.
Retailers are either closing stores or scaling back locations. Slowing spending is squeezing ''mom and pop'' operators out of the market. That trickles down to shopping center developers, which are having more trouble securing tenants and lenders. In turn they are getting more willing to cut deals on rents and tenant improvements.
''Projects that were being planned are being rethought as tenants retreat,'' said broker Lyle Stern of Koniver Stern Group in Miami Beach.
A few highly desirable areas with dense population and high tourist traffic -- think Lincoln Road and Aventura -- are still doing well. Neighborhood centers with strong anchors are holding up, too. But centers built in anticipation of new residents coming in and those that rely on mom and pops are suffering.
Rents have slowed their growth, but some analysts believe rents will actually drop, not just stabilize. ''I think rents are down for maybe the next nine to 12 months,'' said Drew Schaul, a Miami-based associate with the retail group of CB Richard Ellis. "Tenants, especially local tenants, may be asking for rent relief.''
And landlords are responding. Bob Sherman, senior vice president and director of leasing for Davie-based retail developer and manager Ross Realty Investments, said he has been ''more receptive and more creative than in the past'' in accommodating tenants at the company's properties.
Landlords may need to be especially flexible in Broward County, where vacancies at mid-year 2008 were up for the second year in a row, to 7.5 percent, according to a report from Terranova. While some experts say the drop is due to a few large stores closing, others believe some parts of the county are overbuilt.
Certainly, Broward has more retail per capita than Miami-Dade. The ratio of retail square feet per person in Broward is 19.5 to 1, versus 11.3 to 1 in Miami-Dade, Terranova reported. Yet this year, 1.7 million square feet of multi-tenant shopping centers are under construction in Broward, versus 1.5 million in Miami-Dade, said Pete Schlang, director of leasing for Woolbright Development, a shopping center developer and manager. At least, said Ross Realty's Sherman, ''there aren't too many more retail development sites left'' in Broward.
LOW FLOORS SUFFER
In Miami-Dade, with its denser population and fewer square feet of shopping per person, most industry observers say the only real retail overbuilding is on the bottom floors of condos in areas where there just aren't enough residents.
Shopping centers that rely on big-box retailers are having a particularly tough time, as many of those chains are closing locations. Those include Circuit City, Pier 1 Imports and a bankrupt Linens 'n Things. ''There are a number of power centers in South Florida today that are suffering because of the pain their tenants are suffering,'' Bittel said.
Again, centers in hot locations are somewhat immune. The six-story Fifth and Alton development in South Beach had its topping off earlier this summer and is ''so far on time and within budget,'' developer Jeffrey Berkowitz said.