The South Florida retail market has been slowing, but developers aren’t.
It’s a contradiction of sorts as developers push forward with their projects even though the brick-and-mortar market is cooling.
In the fourth quarter, absorption in Palm Beach County was a negative 366,656 square feet, according to Colliers International data. The vacancy rate in Miami-Dade and Broward counties reached 4 percent, up from the 3 percent range earlier in 2018.
“Yes, there is a slowdown, but the slowdown is so small relatively speaking that our markets in Dade, Broward and Palm Beach are extremely healthy,” said Alan Esquenazi, executive director of retail services at Colliers International in Coral Gables. “You are comparing to really stellar numbers of 2017.”
The slowdown essentially means slower inventory absorption and smaller rent increases compared with the quickly escalating rates of recent years.
CoStar Group director Christos Costandinides considers it good news.
“Imagine a fast car. The faster you drive, the higher the chance of an accident. The economy is no different,” said the South Florida market economist in Miami. “The faster you are growing, the more risk basically you are taking.”
Developers, in turn, are designing retail with edgy dining options and something consumers can’t get online: services and an experience. Think along the lines of gyms, movie theaters, bowling alleys, dining, dry cleaners and grocery stores. Many also are opting to embed shops and restaurants in larger mixed-use projects to ensure foot traffic from nearby offices and residences.
“Today you have to approach it differently than you did five, six, 10 years ago. The tenants have changed. The retail landscape has changed,” said Paul Puma, Southern regional president of real estate investment trust Kimco Realty Corp. “We have found in the development of many of our retail properties that it’s wise to introduce some mixed-use components to provide the daytime and evening traffic.”
Kimco Realty is developing Dania Beach’s 102-acre Dania Pointe where retail with everything from discount stores and restaurants to a Bowlero bowling alley and corporate events venue will be in the mix with apartment towers, offices and two hotels.
Beyond sprawling mixed-use projects, new standalone retail is promising a creative mix of venues where shoppers can also be entertained or find services.
“It used to be said ‘location, location, location’ was everything in retail. Now it’s like, ‘Tenant mix, tenant mix, tenant mix.’ Who is my tenant, and what is the mix of my tenants is really what matters,” Colliers’ Esquenazi said.
Bye Bye Malls
Look no farther than the American Dream Miami megamall, which will be on 175 acres southwest of Interstate 75 and Florida’s Turnpike near Miami Lakes.
Canada-based developer Triple Five Group — which has built Minnesota’s mammoth Mall of America and is working on an American Dream mall in New Jersey — is combining shopping with entertainment at its northwest Miami-Dade location on a grand scale.
While the County Commission approved the project, the developer has yet to take the next step to proceed and submit a site plan.
On tap is an indoor ski slope, a lake deep enough for submarine rides, a roller coaster and an aquarium. The $4 billion project is set for more than 5 million square feet of retail and entertainment and 2,000 hotel rooms. That’s like combining Aventura Mall and Sawgrass Mills.
“It’s kind of more of an experience,” said Elinor Gutierrez, a CoStar Group South Florida market analyst based in Atlanta.
This might signal the evolution of the shopping mall with U.S. e-commerce growing in part at the expense of traditional locations.
“We are not seeing a ton of traditional mall space that’s being built,” Gutierrez said. “I don’t want to say we will never see that again, but I think people are shifting away from the traditional concept.”
Across South Florida, malls reported negative absorption in the first quarter, but other fundamentals remained healthy, according to CoStar data.
In Miami-Dade, malls had the highest asking rent of $53.59 per square foot compared with other types of retail, such as strip and power centers where rents were in the $30s per square foot.
Mall vacancy rates dropped to 2.5 percent in Broward and 1.5 percent in Palm Beach. Yet absorption was negative 58,602 square feet at Miami-Dade malls, negative 9,709 square feet in Broward and negative 91,754 square feet in Palm Beach, CoStar reported in mid-March.
Projects such as Dania Pointe are betting on the mixed-use concept and location to drive retail demand.
Dania Pointe is being built northeast of Interstate 95 and Stirling Road about 5 miles from Fort Lauderdale-Hollywood International Airport, adding a tourism element to expected sales.
The first phase comprising 300,000 square feet of discount retail, restaurants and services is finished and most tenants have opened. They include Brandsmart, YouFit, Lucky’s Market, TJ Maxx, Shoe Carnival, Hobby Lobby, Ulta Beauty, Five Below, Men’s Wearhouse, Firehouse Subs, Padrino’s, Verizon and an eye care center. In total, 93 percent of the first phase is leased.
Construction is underway on the first 300 apartments of a planned 1,000 units and an AC Hotels by Marriott and full-service Marriott hotels with a combined 350 rooms. The second phase will include 500,000 square feet of offices and 400,000 square feet of retail and entertainment, only this retail will be more “main street” style, according to Puma.
Tenants will include a movie theater, Cooper’s Hawk Winery & Restaurants, Rodizio Grill, Saito’s Japanese Steakhouse, Tommy Bahama, Lucky Brand and Bar Louie. Overall, about 56 percent of the second-phase retail is pre-leased, and negotiations cover another 15 percent, Puma said.
“It’s very important that retail shopping centers not only provide a mix of uses but also experiential. That’s why the emphasis is on entertainment,” he said.
All About the Food
While it’s a safe bet to include restaurants in retail projects to drive foot traffic, developers no longer can include just any eatery. Instead, they are embracing food halls and chef-driven concepts.
“The consumer is a lot smarter,” said Eduardo Garcia, who is a principal of a development company breathing life into 9.5 waterfront acres in Miami’s Coconut Grove.
The Miami-based TREO Group is developing the Regatta Harbour marina, retail and restaurant project on city property between Biscayne Bay and South Bayshore Drive north of City Hall.
A food hall-type offering is planned inside a historic 20,000-square-foot hangar first used in the early 1900s as a naval air station and later by Pan Am Airways, which had its terminal at the current City Hall building.
Garcia declined to disclose the potential tenant but likened the concept to Eataly, the Italian-based marketplace with locations across the U.S., Europe and Asia.
TREO also is planning a casual eatery and two slightly more formal restaurants, with one of them being Afishionado, the brainchild of “Top Chef” TV show winner Jeremy Ford.
The remaining 34,000 square feet of retail will be housed in a 253-space Miami Parking Authority garage and is expected to include a dry cleaner, coffee shop, yoga studio and Pilates studio. Leases haven’t been signed, but negotiations are far along, Garcia said.
Regatta Harbour also will have a 400-boat dry marina in a project due for completion next year.
Both consumers and retailers becoming more choosy, Garcia said.
“In the old days, they would just build it, and whatever you build, they would just kind of come. That’s changed,” Garcia said. “The amount of tenants are dwindling. Even the footprints of the tenants are getting smaller and smaller. You have to provide something different. You have to provide something that catches the eye.”