For years, Miami has been working to grow, attract investment and claim its spot among the big metropolitan players like New York and Los Angeles from tech to real estate.
When it comes to the retail market, consider the goal achieved.
Miami-Dade County now can boast it has lower availability rate for retail space than New York, Chicago and Los Angeles, although its availability rate still is higher than Boston, San Francisco and Seattle, according to CBRE Inc.
The data is for the fourth quarter 2017 and isn’t for the entire county but most of it, including Kendall, Hialeah, Miami Beach, the Biscayne corridor, Coral Gables and the city of Miami, according to CBRE.
This points to a healthy appetite from retailers interested in setting up shop. The demand comes with one of the fastest-growing rental rates in the past five years, according a CBRE 2018 retail real estate outlook report.
“The rental rates have increased rapidly due to new acquisitions and recent sales. But regardless of that, we are still boasting one of the lowest vacancy rates only because Miami is still a very hot market,” said Ana Barcelo, CBRE first vice president and high-street retail expert in Miami.
That means if you are a retailer looking for space, don’t be surprised if you face an uphill mission.
“Your options are very slim,” Barcelo said.
The vacancy rate has remained less than 4 percent since late 2012, dropping to 3.3 percent in the end of 2017 when the lease rate was $36.97 per square foot, according to a CBRE Marketview report for the fourth quarter.
“Because of the amount of tourism and headquarters that we have in Miami … and also the amount of density that we have from the local people, Miami is still a very desirable market for any retailer, whether it’s a restaurant, services and actual soft-good retails,” Barcelo said.
There’s another metric that also demonstrates the market strength — more construction in recent years.
Take the Aventura Mall, already one of the largest shopping centers in the U.S. at 2.7 million square feet. It recently opened a 315,000-square-foot, three-story wing with stores for British multinational men’s fashion retailer Topshop Topman and Spanish multinational clothing and accessories retailer Zara, as well as restaurants.
A TALE OF TWO MARKETS
Despite the healthy Miami market and strong fundamentals in the larger South Florida region, it hasn’t been all good news for retail.
Indeed, the story of retail real estate is a story of paradoxes.
Since the beginning of the year, three department stores and one grocery chain have announced closings impacting South Florida.
The downtown Miami Macy’s and the Sears anchor at the Town Center at Boca Raton closed as part of nationwide downsizing. Toys ‘R’ Us and Babies ‘R’ Us stores throughout the region are closing after the company filed for bankruptcy protection last fall. At least six Winn-Dixies in the region also are closing.
And with every passing year, e-commerce comprises a bigger and bigger chunk of retail sales — and it’s expected to grow.
E-commerce comprised about 4 percent of U.S. retail sales in 2010 and 9 percent in 2017. U.S. online sales are expected to grow at 15 percent annually by 2020, according to a JLL 2017 Florida Retail Report.
But JLL data also shows malls are thriving.
More than 24 million square feet of retail opened in U.S. malls from 2016 to 2017, nearly double the 15.1 million square feet of retail that closed shop during the same time, according to the JLL report.
Some of the top e-commerce sellers in 2017 were retailers with brick-and-mortar stores such as Walmart, which was the third biggest e-retailer, according to the JLL data. Macy’s was the fifth-biggest retailer, followed by Home Depot, Best Buy, Costco, Nordstrom and Kohl’s, according to the report.
In a way, brick-and-mortar stores and an online presence go hand-in-hand for some retailers.
“Retailers, their own statistics will show that if they don’t have a brick-and-mortar shopping center present with a big name, let’s just say a Bed Bath & Beyond for instance, … you don’t necessarily shop online there,” said Katy Welsh, Colliers International South Florida senior vice president of retail based in Boca Raton.
She added the big-box closings are an opportunity to redevelop the space with more profitable options. That includes grocery stores, an asset considered healthy and immune to severe impacts from e-commerce.
Another sign South Florida has joined big-league retail markets is the push for high-street retail, or luxury stores lining a street instead of being in an enclosed mall.
Lincoln Road and Worth Avenue are the traditional ones.
Now there’s also Miami’s Design District.
“It’s not South Florida as a whole looking to grow the high-street market as much as it is what can the market bear? What is the highest and best use? And where would we see the most success potentially?” said Zach Winkler, senior vice president and market lead for JLL’s South Florida retail practice.
The 18-block Design District is home to high-end stores and restaurants — which six years ago was called “highly anticipated” yet at the time “more of a disappointment” in a JLL retail report. It has pulled ahead with new construction and one of the highest lease rates.
“Nothing happens overnight, especially a project like the Design District, which is being done in phases and has multiple owners and multiple people having their hands in it. It takes time and it’s still yet to be seen how successful it will be,” Winkler said.
The two-story Paradise Plaza at 151 NE 41st St. opened in November.
Already, Gucci, Joseph, Rag & Bone and Eres opened last fall along with flagship stores for Prada and Rick Owens, according to the district website.
Rental rates in the Design District range from $55 per square foot to $215 per square foot triple net, according to a February CBRE Viewpoint report.
That’s higher than the asking rent range for Miami’s Brickell District, although it’s not as high as the asking rent range for Lincoln Road at $150 to $275 per square foot, according to the report.
High-street retail has become so popular with international shoppers that it’s led to an adage.
“Come with one suitcase, leave with two,” Winkler said. ”And I think we are starting to see that on the luxury side as well.”
The tightening Palm Beach market is attractive to investors and tenants, according to a CBRE retail real estate outlook.
The asking rent has been scaling up from less than $18 per square foot in 2014 to about $21 per square foot triple net in 2018. At the same time, the availability rate has been decreasing from 8 percent in 2014 to less than 6 percent in 2018, according to the report.
The demand also is growing. Retailers in Broward or Miami-Dade counties now might be looking to add a location in Palm Beach, said Barcelo, CBRE’s first vice president.
“With Brightline … it just makes it so much easier for owners and the local retailers that are growing organically,” she said. “It just makes it so much easier for them to be able to travel between their locations because the transportation is becoming better accessible to them. … They say, ‘Well, my second location needs to be close to my first location because we need to be able to tend to both.’ ”
Brightline is the high-speed passenger train that already connects Fort Lauderdale and West Palm Beach and is to begin service to downtown Miami.
In Broward, however, data show an unfavorable tip in the supply-and-demand balance.
The availability rate is expected to reach 8 percent this year, the highest in four years, according to the CBRE report. The more than 1 million square feet of completions this year far outpaces the less than half-a-million square feet of net absorption, the data show.
This could be because of increasing rents in Broward and less preleasing at new retail projects, Barcelo said.
The asking rent was about $19 per square foot in 2014 and has increased to nearly $22 per square foot triple net in 2018, according to the CBRE report.
Generally, retail leasing begins when a project is under construction, but the schedule lags at some developments in Broward, Barcelo said.
“ What I’ve noticed is that usually, when the project comes out to lease, it’s being done (when) … the project is ready,” she said.
In the end, Barcelo added, it’s difficult to generalize for an entire county instead of looking at specific neighborhoods. And the diversity of each area within each county, including the difference in rents, is another aspect of the South Florida market that makes it so attractive.
“That’s what we often tell our retailers,’You could come into Brickell and pay X, but if you don’t want to pay that … you may just want to go to Coral Gables or downtown and the rents may be a little bit lower” without being far from the Brickell market, Barcelo said.