Investing in Florida Retail 101

The Florida retail market is thriving thanks to its growing population, exceptional weather conditions, and strong tourism. More than 404,000 people migrated to Florida in 2020, and the state is set to reach 25 million in total population, according to Demographic Estimating Conference. There are currently 22 million residents in the state, with over two-thirds born out of state. Increased foot traffic in the state’s core retail centers helped the Florida markets recover faster than others after the COVID-19 pandemic. Florida’s top retail tenants include grocers, discount retailers, and fitness facilities. According to World Population Review, Florida holds 353 people per square mile, making the state the eighth most densely populated in the U.S.

Miami

The retail market in Miami is highly dependent on tourism, as spending from domestic and international travelers is what keeps this market alive. Miami Beach attracts approximately 3.3 million visitors annually, according to the Greater Miami Convention & Visitors Bureau. The current vacancy rate in the Miami retail market is three percent, showing a slight decrease of 0.1 percent from 2022. Net absorption in the market reached 910,000 square feet, while 770,000 square feet were added. Rent prices have risen to around $44.00 per square foot, marking a 4.8 percent yearly increase and a cumulative increase of 14.9 percent over the past three years. Construction is underway for approximately 2.9 million square feet of retail space, a two percent expansion. The Miami retail market is one of the largest in the U.S., completing 441 retail deals last year, with an average annual sales volume of about $1.5 billion and an investment volume peaking at $3.1 billion in the last five years. Market pricing for retail properties across all sectors is estimated at $433 per square foot. The current cap rate is 5.3 percent, the lowest in the past five years.

Orlando

Retail demand has tremendously improved across Orlando due to rent growth being driven by strong consumer spending and a rise in average incomes. Rent growth increased by 7.9 percent in the past 12 months, according to CoStar Group, which can be attributed to the market’s dynamic economy fueled by the technology, finance, and growing defense sector, in addition to world-renowned theme parks. Orlando is seeing jumps in new development and consumer spending due to the pandemic triggering household formation and increased in-migration. While retailers such as fast casual and drugstores have over-performed, indoor shopping malls have declined in popularity as consumer preferences shift to open-air centers. Because of this, many malls in Orlando are being converted into adaptive reuse projects. Many unused mall buildings can transform to include a mix of trending uses such as self-storage, fitness centers, and multifamily or mixed-use redevelopments. Most retail, especially malls, are in highly desirable locations. They provide ease of access and are often located near neighborhoods. A strong location can make even a complicated redevelopment work, as the land is justified for the cost of demolition and new construction. Orlando’s retail darling is grocery-anchored shopping centers which increase foot traffic to smaller brick-and-mortar shops nearby. Publix is one of Florida’s largest and most popular grocers, reporting a 9.3 percent revenue increase in Q2 22.

There have been 530 retail sales totaling $1.7B in total transactional volume over the trailing 12-month period. – Costar Group

Tampa

For the past year, the retail demand in Tampa has remained consistently high, which can be attributed to the city’s steady population growth, increase in wages, and consistent consumer spending. The market boasts a 2.3 percent unemployment rate, much lower than the U.S. average of 3.5 percent. In addition, Tampa has seen an influx of over 40,000 new residents since the start of the pandemic. With such population growth comes an immense development pipeline in Tampa and the surrounding markets. Wesley Chapel has proven to be one such growth market with extensive retail and housing.

According to CoStar Group, approximately 50 leases exceeding 10,000 square feet have been signed over the last four quarters, with a significant number of them being occupied by discount clothing retailers, furniture stores, and fitness businesses. Retail owners are ecstatic about Tampa’s performance coming out of the pandemic, which is operating the opposite of how it did after the global financial crisis in 2008. Tampa vacancies rose to eight percent in 2008, compared to today’s 3.1 percent. As Tampa continues on its aggressive growth trajectory, retail assets in the MSA can be expected to continue to outperform in the years to come.

In recent quarters, rent growth has increased due to the overall improvement in leasing fundamentals, and Tampa is one of the top markets in the U.S. – CoStar Group

Jacksonville

The demand for retail construction in Jacksonville is exceptionally high, specifically in residential and suburban communities where the population has increased substantially in recent years. Thanks to increased population and multifamily development, Jacksonville sees heavy foot traffic in retail locations throughout the market. Neighborhood centers are popular among consumers as they are often nearby homes and sell general convenience items. These centers are smaller than a traditional community center but still offer the benefits of a strong anchor tenant such as a  supermarket or drugstore. Over the past three years, rent growth has significantly improved, with Jacksonville being the top market in the country for year-over-year rent growth as of the end of Q1 2023. The current annual rent growth rate in Jacksonville is 10.3 percent, which is much higher than the national average of 3.4 percent, and this trend is expected to continue in the next few years.

In the last 12 months, there have been 460 trades with a total investment volume of $760 million. The average market cap rate, which is slightly above the national average, stands at 6.5% – CoStar Group

Naples

Naples’s economy relies heavily on tourism bringing in an influx of foot traffic to its retail destinations. Naples only houses just under 20,000 full-time residents, according to World Population Review, leaving most of its occupants as part-time residents or visitors. In 2021, more than 1.5 million tourists vacationed in Collier County, home to Naples. In addition to its high volume of annual visitors, the Naples market is a national destination for retirees and has seen an influx of population growth in recent years. Given the relatively large amount of recreational time both tourists and retirement-age individuals have, the Naples retail sector has historically thrived and is expected to continue its growth. With the recent influx of population, the employment rate in Naples is also increasing by approximately 4.1 percent annually to keep up with the demand in the sector.

In the last 12 months, the total trading volume amounts to almost $305 million, and the price per square foot has been increasing steadily, averaging $330/SF. This is notably higher than the national average of $250/SF. – CoStar Group

Conclusion

Florida’s retail market is heavily driven by tourism and new residents in search of sunshine, opportunity, and fewer restrictions. The market’s commercial real estate industry is booming, specifically in the net lease retail sector, including grocers, discount retailers, fitness centers, and furniture stores. Increased employment rates and housing development is attracting investors and developers, making Florida one of the top-performing states in the country.