SOUTHEAST SNAPSHOT, SEPTEMBER 2008

Tampa Retail Market

The Tampa retail market continues to experience steady change, adapting to new lifestyles and the needs of consumers. From a development perspective, gone are the days of “if you build it, they will come.” Developers have been spoiled and market analysis mistakes were covered up by increasing rooftops. Now only the most diligent of developers who analyze the market carefully will be successful.

Today, developers are looking to create destinations that are multifaceted, places where a consumer can work in a building, eat at a white tablecloth restaurant, cash a check at a bank on the outparcel and shop at a fresh market for dinner without leaving the development.

Currently being developed by Raleigh, N.C.-based Highwoods Properties and Gainesville, Ga.-based McKibbon Hotel Group, Avion Park, located in the Westshore district of Tampa, has all of the elements in this new destination concept. The $150 million mixed-use project will feature retail, hotel, office and multifamily components. New Tampa has experienced a great push for retailers due to a recent influx of housing, and recent development activity in Hillsborough and Pasco counties has put this area on the map. Current projects under construction in Pasco County will increase the retail inventory by more than 18 percent, and reports are that pre-leasing is going very well. In the downtown area, new condo development projects have generated the need for smaller retail establishments, such as bars and restaurants, creating a live/work/play environment. With the 2009 Super Bowl being played in Tampa, developers and entrepreneurs are working to get concept restaurants, bars and clubs open to capture those dollars. The redevelopment of the Tampa Museum of Art along with the Riverwalk concept should also start to reignite the central business district.

With the new destination development concept, big box retailers are beginning to change the look of their buildings and the way they impact the area. Today, developers are looking to create a more aesthetically pleasing setting, and they are also incorporating LEED-certified projects with more efficient landscaping, rooftop solar panels and retrofitted buildings to reduce each development’s environmental impact. In today’s society, green is good, and people like to feel that they are part of something that doesn’t negatively affect the environment.

Among the larger active developers in the Tampa retail market are Ohio-based Equity, Ft. Lauderdale, Fla.-based Stiles Corp., Cleveland-based The Richard E. Jacobs Group and the local firm RMC Property Group. Each of the developers has begun construction on or is in the planning states of various projects. With new development concepts comes a new crop of tenants. The most active tenants in the Tampa market include Target, CVS/pharmacy, Walgreens and Circle K Stores.

From a leasing standpoint, the average vacancy rates for retail in the Tampa Bay market have increased a full percentage point in the last calendar year; however, the rental rates continue to increase steadily. Older centers are up to an average of $22 per square foot with newer centers ranging between $27 to $35 per square foot. The increase in vacancy, for the most part, can be attributed to the smaller mom and pop tenants not being able to survive in our current economic downturn. This is also having an effect on the retail investment market in Tampa. Investors are rethinking their requirements for minimum CAP rates and IRR, and they are chasing more credit-worthy tenants that may have a lower return.

During the next several months, the Tampa retail market will continue to evolve. Developers will continue changing their requirements as well as their site plans. Projects will continue getting a little more unique in order to intrigue the tenant and the customer, and outparcels will become a very valuable source of income for developers. Buyers can no longer blindly purchase any property expecting benefits and increased value. A thorough analysis of the tenants’ business model and acumen will be critical to the success of investment properties because it is ultimately rent that creates value for investors.

— Kenny Anderson and Jason Donald are managing directors for Sperry Van Ness/Commercial Property and Investment Group in Tampa, Fla.

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