Retail by Jean Gruss | Editor/Lee-Collier
Falling vacancy rates and construction costs are driving up rents for retailers along Florida's Gulf Coast. How much higher can they go?
Want to open up a shop in Naples? Better check with the accountants.
Shop-owners in Collier County pay the highest rents for retail space along Florida's Gulf Coast from Tampa to Naples, according to a recent survey of data collected by market tracker CoStar Group.
Asking rents for retail space in Collier County are as high as $55 per square foot. And that doesn't even include tenant expenses such as insurance, taxes and common-area maintenance.
Brokers who lease retail space uniformly say rents have been rising from Tampa to Naples as vacancy rates drop, new businesses move in and construction costs skyrocket.
"That's happened everywhere," says David Conn, senior vice president and the Southeast director of retailer services for CB Richard Ellis in Tampa.
"We've had some serious escalation of construction costs," Conn says. "Rents are much higher because they have to be."
In the Tampa area, Conn estimates a retailer that might have been paying an average rent of $16 a square foot two years ago could now be paying $25, a 56% increase.
It's the same story in other counties. "Our market is second to Naples in rental rates," says Sue Ault, founder of Ault Realty Advisors in Sarasota. Overall, rents in the Sarasota area have climbed 50% in the last three years, she says.
In Lee County, vacancy rates have declined substantially since the county reached the 500,000-population mark, says Karen Johnson-Crowther, principal and director of retail services with Colliers Arnold in Fort Myers. Once the population reached that milestone, national retailers descended on the Fort Myers area and drove shopping-center vacancy rates down to 3.5%, according to data from CoStar Group.
Construction costs skyrocket
As vacancy rates have dropped, developers have responded by building new shopping centers. But the cost of land and materials has escalated so quickly that landlords have little choice but to ask new tenants to pay higher rents.
For example, Johnson-Crowther says rents in the high teens a few years ago have risen to as high as $40 per square foot in Lee County.
Higher rents in new centers have a domino effect in the market. "It enables more mature centers to step up their rents considerably," says Ault.
Still, rents depend largely on location, traffic and anchors. Publix-anchored shopping centers generally charge more than ones anchored by Winn-Dixie, for example.
Conn says two shopping centers could be within "spitting distance" and still charge vastly different rents based on the traffic and location.
Indeed, average rents in a county don't reflect the peculiarities of certain submarkets and even individual shopping centers that might skew the averages higher or lower. For example, rents in Hillsborough start as low as $3.10 per square foot to as much as $45 per square foot, according to CoStar.
Fortunately for tenants, the double-digit percentage increases in rents are not likely to continue. That's in part because new construction in the pipeline could increase vacancy rates. In addition, tenants may scoff at higher rents because their business can't support paying them.
That's particularly true for smaller retailers. "Smaller retailers can only sell so many haircuts and burgers," says Johnson-Crowther.
In Sarasota, Ault believes rents have reached their peak in how much they can charge tenants. If rents go any higher, many tenants won't be able to justify opening their doors. "It's really not the developer's fault," she says. "Land values have to go down and construction costs have to go down."
In the Tampa area, rents may still have room to grow because, on average, they haven't reached the levels seen in Collier or Sarasota counties. What's more, the Hillsborough and Pinellas markets are so much bigger that tenants generally have greater choices for locations.
Costar retail focus
Shops and stores from Tampa to Naples are generally paying more rent today as vacancy rates decline and new-construction costs rise. Here's a regional snapshot of the shopping-center market, according to commercial-space tracker CoStar Group.
Number of buildings: 415
Rentable building area: 31,082,997 square feet
Vacancy rate: 4.1%
Average asking rent (triple net): $14.42
Year-to-date net absorption: 319,200 square feet
Number of buildings: 340
Rentable building area: 23,763,082 square feet
Vacancy rate: 5.4%
Average asking rent (triple net): $15.28
Year-to-date net absorption: ?407,719 square feet
Number of buildings: 134
Rentable building area: 10,224,767 square feet
Vacancy rate: 9.1%
Average asking rent (triple net): $15.79
Year-to-date net absorption: ?88,497 square feet
Number of buildings: 96
Rentable building area: 7,502,150 square feet
Vacancy rate: 5.1%
Average asking rent (triple net): $13.54
Year-to-date net absorption: ?6,417 square feet
Number of buildings: 110
Rentable building area: 4,786,949 square feet
Vacancy rate: 4.5%
Average asking rent (triple net): $19.43
Year-to-date net absorption: 8,522 square feet
Number of buildings: 415
Rentable building area: 20,768,700 square feet
Vacancy rate: 3.5%
Average asking rent (triple net): $15.75
Year-to-date net absorption: 854,112 square feet
Number of buildings: 263
Rentable building area: 9,632,963 square feet
Vacancy rate: 2.4%
Average asking rent (triple net): $20
Year-to-date net absorption: 123,757 square feet
Source: CoStar Group