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Ask virtually any retailer if there's excess inventory that's sitting around taking up space, and they'll tell you it's better to closeout price it. That ubiquitous retail theory is playing out across the Gulf Coast's retail real estate market, and so far its looks like its finding success.
Retail real estate has moved this year from another bottomed-out commercial real estate sector to the No. 2 spot in investor demand, behind multifamily.
WHAT'S HOT: Publix and other high-credit anchored retail centers and properties in high growth areas and city centers, such as St. Armands Circle in Sarasota.
WHAT'S NOT: Smaller unanchored properties, especially in more suburban locations.
TRANSACTION TRENDS: After a decline that started in 2008 and hit bottom in 2009, sales transactions in Tampa Bay have leveled out at more than 80 sales a quarter, according to research from the CoStar Group. Year over year, quarterly transactions have increased in all but one quarter (a tiny two-transaction decline in the most recent third quarter) since the fourth quarter of 2009.
That transaction growth is more than mirrored in Southwest Florida. Transactions are at their highest levels in at least four years, culminating with a peak of 55 transactions in the second quarter followed by the second-highest transaction level in the third quarter. Transactions have grown every quarter on a year-over-year basis since 2009.
PRICING TRENDS: Although the glass is half full, sales prices are off their peak and in one region still tumbling. In Southwest Florida, the median price per square foot hit its lowest level in four years in the second quarter at just $102.47. That marks a decline from a median price high point of $398.14 in the second quarter of 2007. Year over year, prices have declined every quarter, but one, since the first quarter of 2009.
However, the Tampa Bay region has been showing some signs of pricing improvement recently. It saw a slight increase in median square-foot prices year over year in the third quarter and early transactions recorded so far in the fourth quarter put it on track for significant growth. That follows a fairly steady year-over-year decline since the third quarter of 2008. Median square-foot prices hit their lowest level in the past six years in the first quarter, at $124.81.
“Retail is definitely firming up,” says Randy Thibaut, president of Fort Myers-based Land Solutions Inc. “When you look at retail centers like Cocoanut Point and the Mercato you're starting to see more brand names popping up like Olive Garden. Three years ago that type of expansion just stopped. Seeing these major brand names stepping back up to the table is a great sign.”
Brokers from across the region have seen a sharp increase in retail leases this year over 2010. As an example, Dennis Dahm, director of commercial sales and leasing for Sarasota-based Michael Saunders & Co., says the firm did 30 leases in 2010 for 54,422 square feet. As of the end of November, the firm had already completed 38 retail leases for 69,533 square feet.
One of the most optimistic trends for retail comes from Brian Bern, senior director of Franklin Street Real Estate Services in Tampa. He and his staff say that class A and to a lesser extent class B retail properties are starting to fill up so much that those two products may have an inventory crunch. Bern suggests that the lack of high-quality space could translate into redevelopments and possibly even new development.
John Mounce, principal of the LandQwest Commercial, which is particularly prominent in Southwest Florida retail space, is predicting a more modest improvement for retail in 2012 — and he's far from alone.
“Rental rates have stabilized in the anchored space,” he says. “The unanchored space is still a crapshoot. The landings gear is up, although we haven't cleared the trees yet. We aren't bumping along the bottom any more.”
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