COVER STORY, AUGUST 2010

FLORIDA RETAIL UPDATE
The industry hopes better times are around the corner.
Lindsay Sport

Last year, the retail market was full of uncertainty. 2009 saw buzzwords such as economic downturn, recession, distressed and foreclosure become common staples in conversation. Florida’s retail market was no exception as industry players hunkered down to ride out the storm. No one expected a full recovery by 2010, but Florida’s retail environment is beginning to see some growth.

“In 2009, overall retail sales hit bottom. Since that time, sales in many retail categories are experiencing a slight upswing as consumers return to traditional retail outlets for basic goods and services,” says John Dottore, operating partner of The Shopping Center Group’s Longwood, Florida office.

And while Florida’s retail market is still coping with the effects of the economic fallout, its markets are seemingly beginning to stabilize.

“I believe that retail has begun to turn a corner from more and more bankruptcies to a more balanced status quo,” says Gary Montour, vice president of Jacksonville, Florida-based Colliers Dickinson. “This does not mean that people are expecting huge gains in sales. It does mean they are a little optimistic that they can get through the next couple of years, which will still be difficult for the small businessman.”

Like many other markets nationwide, however, the retail market in Florida is far from recovered. According to Dottore, gross sales tax revenues in every major Florida MSA have plummeted from peak levels and currently hover at 2005 and 2006 levels. Many retailers are thriving, but at the expense of other retailers rather than due to an expansion of total retail sales.

Despite different market challenges, the outlook that’s spreading across the Sunshine State is one of perseverance, hope and confidence.

“The future is always bright in Florida,” says Dottore. “This is not our first economic downturn, and a rebound is imminent.”

Tenancy And The Changing Market

The retail markets around Florida have seen varied reactions to the current economic climate. Some are seeing slight growth, while others are experiencing slight decline, but overall markets have remained somewhat leveled out in 2010.

Some of the most stable markets, says Dottore, have been Gainesville and Lakeland. In 2009, Gainesville’s retail sales were at record levels, with the Lakeland market showing retail sales just slightly off peak levels.

“These markets have stable employment bases that were not heavily reliant upon tourism and real estate, and therefore, were spared from the unsustainable surge in speculative real estate development that marred other major markets and coastal communities,” Dottore says.

In Tampa, the markets are relatively stagnant, but some retail players are beginning to see a slight resurgence of activity. Susie Rice, president of RMC Property Group based in Tampa, says RMC has seen an increase in the market for 2010.

“The retail market in the Tampa area has been active for RMC in the first half of 2010,” says Rice. “RMC’s leasing activity for 2010 is on track to absorb 32 percent of the existing vacancies.”

Throughout the last 12 months, says Rice, RMC has experienced a 3 percent absorption portfolio-wide, and based on completed leasing deals for the first half of the year, RMC projects an increase of 13 percent in occupied square footage for 2010, as well as a significant increase in the number of lease renewals as compared to 2009. Even with the growth, however, Rice says RMC still expects consumer confidence to waver.

“While we do not believe tenant store closings are over, we have seen a slowdown in closings during the first half of 2010. We have seen vacancies slow, although we do not think the contraction is over yet,” she says.

Lenore Reynolds, vice president of leasing for Bruce Strumpf Inc. based in Clearwater, Florida, says she hasn’t seen as quick of a rebound in the Tampa market, but that activity is starting to pick up slightly.

“We had a small flurry of activity since May after a very quiet January through April,” says Reynolds.

Across RMC’s portfolio, occupancy rate for the Tampa Bay area averages 91 percent, compared to the statewide rate of 86 percent.

According to Rice, several national closing chains are closing non-performing locations, video rental chains are going bankrupt as they try to compete with online and Red Box rentals and restaurants are suffering.

But there are tenants looking to expand. Rice says that RMC is seeing a surprising increased interest from Asian restaurants to open new locations. Another interesting trend is increased activity from packaging/shipping retailers as consumers react to increased airline baggage fees. RMC also just signed a deal with Home Shopping Network for 17,273 square feet of space. The new lease marks the fourth Home Shopping Network location in the Tampa Bay area.

In Jacksonville, the market is a little more tense as an increased number of vacancies plague the retail market. Montour says that he has experienced a decline in Jacksonville retail activity in 2010.

St. John’s Town Center on Jacksonville’s River City Drive, which was completed in 2005, continues to post record sales and expand, even though dark tenants are still a factor.

“I have seen an overall decline in the retail market in Jacksonville, except for the St. John’s Town Center,” says Montour. “All of the other areas have had tenant losses, or the tenants have been requesting to the landlords rent reductions to stay afloat.”

According to Montour, Regency Square Mall market seems to be declining with a high vacancy rate, along with Baymeadows market, while the Orange Park Mall on Wells Road and The Avenues on Southside Boulevard have a strong retail presence despite increased vacancies. On the upside, St. John’s Town Center on River City Drive, which was completed in 2005, continues to post record sales and expand, even though dark tenants are still a factor due to the economy.

“We continue to get more calls the last three or four months from retailers looking to lease vacant space, but St. John’s Town Center is the only area that seems to be gaining new notable brands into the Jacksonville Market,” Montour says.

As for retailers, Publix continues to have a strong presence in the area. Montour says Food Lion, despite closing poorly performing stores, has opened two new sites in the Jacksonville market. But overall, big box retailers are stagnant. “They seem to be telling us that they will not be re-entering the market until 2012,” Montour says.

Chuck White, NAI business director for NAI Commercial Jacksonville in Jacksonville, agrees that the market is experiencing a slight dip compared to 2009.

“The Jacksonville market has declined since last year,” White says. “I wouldn’t call it substantial. I think it’s leveled off. We’re not really losing the big chains, necessarily. We’re just like everybody else. What nationals are doing in other cities, they are doing here.”

According to White, Jacksonville is experiencing a tenancy challenge prevalent throughout the state as retailers work to close underperforming locations and cut overhead costs. Some retailers are looking to expand, however. White says that NAI Commercial Jacksonville has about four deals with Save-A-Lot for new locations around the area.

In Northwest Florida, Myra Williams, vice president of marketing for The Howard Group, reports tenant activity despite retailer uncertainty. The Howard Group’s Silver Sands Factory Stores on Emerald Coast Parkway in Destin, Florida, continues to add retailers. In addition, Williams says, there are a number of prospective tenants looking to make their Northwest Florida debut at The Howard Group’s Silver Sands or Grand Boulevard at Sandestin Town Center, located on Grand Boulevard in Miramar Beach, Florida.

According to Randy Tulepan, vice president of Tulepan Management located in Coral Springs, Florida, South Florida is experiencing 85 to 90 percent occupancy in the area, up from 2009.

“We have seen an upsurge in leasing activity in the prime markets. Sales figures for tenants have increased modestly from last year,” Tulepan says. “Private colleges and trade schools are showing tremendous interest in retail space. Additionally, self-serve frozen yogurt concepts are expanding at a rapid pace.”

Tenant Trends of 2010

The trends emerging throughout Florida in 2010 are relatively consistent across the state. Similar to 2009, Florida tenancy is seeing the surge of the discount retailer as consumers continue to hold back on retail spending and focus on value.

“From the consumer perspective, there is a clear focus on finding value, especially from groceries and soft goods,” Rice explains.

Reynolds agrees, saying that the retailers that are continuing to do deals are tenants such as Family Dollar, Bealls, Big Lots, Dollar Tree and Dollar General.

“What do seem to be working are the discounters, the Save-A-Lots of the world. The discount grocers seem to be the only ones that are making any progress in this and doing new deals,” White adds.

But with the emergence of discount retailers, Montour warns that smaller businesses are the ones that will take the hit.

“The shopper is looking for as much discount as they can get when they go shopping. Walmart and Target continue to be the best performers. The smaller mom-and-pop tenants are suffering right now. Many are going bankrupt and having to leave their once flourishing retail market,” Montour says.

Another popular trend spanning the Florida markets sees retailers taking advantage of discounted rents to position themselves in quality locations. “We are seeing a considerable number of retailers repositioning to locations where they can benefit from the current market rent, good visibility/location and an updated store prototype,” Rice says.

The lower rates are even allowing some retailers to move into locations that otherwise would have been out of their grasps 2 or 3 years ago. In 2010, typical B and C tenants are moving to A locations, resulting in the increased availability of inline shop space, as well as higher vacancies in lower class centers.

“The guys with the good centers are reducing their rates to get the cash flow up and get tenants in, but the other ones suffer,” says White. “I spoke with a developer the other day who told me that he’d filled up all his A locations with B and C tenants because his rates were down.”

Strong national and regional brands are aggressively expanding to take advantage of available space at discounted rates, says Dottore. Retailers entering Florida markets include Dick’s Sporting Goods and Academy Sports in North Florida, AJ Wright in Tampa and Jacksonville markets and Aldi in Southeast Florida. Retailers such as Bloomingdale’s Outlet, Nordstrom Rack, Hobby Lobby, Famous Labels, Aspen Dental and quick service restaurants and yogurt concepts have been expanding throughout the state.

“Yet, as many franchise retailers and mom-and-pop tenants that are succeeding, there are just as many closing throughout Florida,” Dottore says. “Small businesses with a track record of success are capitalizing on prime shop space at discounted rents, while many are going out of business due to declining sales and limited access to credit and financing.”

Development Slow, But Not Gone

This year, retail development in Florida has come to somewhat of a halt due to lack of financing and demand. “Available space remains throughout Florida due to the overbuilt retail landscape and the decline of the state’s growth rate,” says Dottore.

“Retail development, like more development, is at a complete halt,” adds Montour. And with most big box retailers delaying expansions until 2012, new projects aren’t expected until 2011.

However slow, deals are still getting done around the state. As part of RMC’s pipeline, the company is currently working with three Publix redevelopments to construct new Publix stores. RMC is also working on the construction of a freestanding CVS/pharmacy location.

In South Florida, Tulepan Management LLC has just completed construction on the first phase of Coral Square Shoppes located on U.S. Highway 1 in Fort Pierce, Florida. Anchored by Save-A-Lot, the first phase of the project consists of approximately 45,000 square feet of space. When completed, Coral Square Shoppes will stand at 182,000 square feet. 

In addition to steady leasing at its Sandestin centers, The Howard Group is also pursuing development at the locations. Five retail spaces are currently under construction at Silver Sands, including the major Ralph Lauren expansion. Grand Boulevard at Sandestin Town Center, temporary home to Spirit Productions Worldwide’s show Le Grand Cirque, may also see the addition of a permanent theater if customer reaction is favorable, says Williams.

While development has been greatly affected by the economy, Dottore says that the economic downturn will do more than alter the physical landscape of Florida, but create a new, smarter approach to development in the future.

“Retail is shifting back to basics — both from a consumer demand and development standpoint. The 2000s found municipalities enamored with the town center concept. In many cases, municipalities wielded their power and tapped developers to deliver unique development strategies despite existing market factors,” he says. “When retail development returns, a more conservative mindset will prevail with retailers — not spectators — driving development. Projects will still be based on fundamentals and backed by retailers with calculated expansion strategies,” he says.

A Bright Future

As for the future of Florida retail, no one expects the markets to turn around immediately. Reynolds says she expects the Tampa market to remain stagnant until 2013.

“Those entities with cash will continue to move forward, although slowly over the next 2 years. Without credit availability, I do not see healthy growth over the next 2 years,” Reynolds says.

Montour agrees that economic relief won’t come for more than a year. “Those that can make it through the next year or 18 months will probably be the ones who will stand and flourish as the economy continues to grow at a modest rate,” he says.

Whatever the timeline, Florida players seem to be hopeful about the state’s future.

“We are optimistic and believe that the Tampa area retail market has a bright future,” says Rice. “Tenants have demonstrated that they have made a commitment to this area, and the owners have learned that they need to be flexible in order to retain tenants.”

“The Gulf situation has certainly affected everyone but to what extent will not be realized for another few months. The silver lining in this situation is that it has created an increased awareness for our area and we have to offer beyond our beautiful beaches,” says Williams. “We are optimistic that our region will recover and bounce back.”

And no matter the environment for 2010, Florida retail executives are just thankful to still be a part of it. “We’re grinding it out,” says White. “We’re faring well and we’re positive because we’re still in the game.”

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