Retail in Florida has proven to be a consistent winner, even as the state encounters the same macroeconomic headwinds hitting the rest of the country. Fueled by growing demand and lower supply, the sector, and leasing activity in particular, is boasting unparalleled performance.

Brokers and developers working in the state who were interviewed for this article uniformly point to the sustained population surge as the driving force behind the success of retail real estate throughout the entirety of Florida.

Joe Gallaher, a partner with NAI Miami|Fort Lauderdale, puts it succinctly: “It’s different from the rest of the nation, just based on the influx of residents that we get to the state every day; there is always an increasing demand for retail.”

Robert Spratt, president of Hill Partners, an owner and developer based in Charlotte, North Carolina, affirms that Florida “continues to benefit from the shift of the population to the South.”

Josh Beyer, senior vice president of development with The Sembler Co., a retail management and development company based in St. Petersburg, concurs.

“Florida’s population continues to be on a really high-growth path,” says Beyer. “The Southeast  as a region is marked by very health retail on the whole, but Florida stands out as a gold star.”

In December 2022, the United States Census Bureau reported that Florida was the fastest growing state in the country for the year. Florida has also held the title of being the third-most populated state overall, surpassing New York in 2014. The state’s population increased by 1.9 percent between 2021 and 2022, reaching 22.2 million people and marking the first time the so-called Sunshine State led the country in population growth since 1957.

The moniker of “Sunshine State” gestures toward what sources say is the driving factor in Florida-focused migration: good weather and a warmer climate.

Michael McNaughton, chief operating officer of Sleiman, a Jacksonville-based development firm, gestures to North Florida as particularly attractive for would-be Floridians. According to McNaughton, the region offers “a three-season type of opportunity” and the best schools in the state, making it a very attractive location for “continued economic development and population growth.”

Another of Florida’s distinguishing elements is the lack of state income taxes. Others interviewed similarly identify the state as a tax haven of sorts. McNaughton predicts that people will continue to migrate from other large metropolitan areas in order to capitalize on Florida taxes and its lifestyle.

A good time, not a long time

In addition to the influx of permanent residents, Florida sees a fair share of tourism-driven traffic. As the acting downtown development board director for the City of Orlando, David Barilla is very familiar with such traffic. Barilla says that his city alone sees upward of 70 million tourists annually.

In addition to being home to Universal Studios and being proximate to Walt Disney World Resort, which is located roughly 15 miles outside
Orlando, the city houses tourist drivers such as Dr. Phillips Center for
Performing Arts, Camping World Stadium — which will host the NFL’s 2024 Pro Bowl Games — Amway Center and Exploria Stadium.

Noel Cupkovic of Cupkovic Architects summarizes that retail in Florida, as compared to the rest of the world, is “definitely better because of the density of the people who are here and the tourism market.”

Tourism lends itself to the establishment of Orlando as a strong food-and-beverage base with the presence of world-class restaurants, adds Barilla. Food-and-beverage concepts populating the city include solita Tacos & Margaritas — which took over a space formerly occupied by Wahlburgers — Mason’s Famous Lobster Rolls and Pappy Smash Burger, to name a few.

Retail for residents

The City of Orlando, and its downtown development board, is not interested only in catering growth and the city’s retail lineup to those passing through. According to Barilla, the organization’s goal is to showcase “the true, authentic Orlando” to visitors, targeting “even 1 to 2 percent” of those 70 million tourists each year. Importantly though, Barilla’s team also strives to ensure that the retail lineup includes necessity-based retail such as grocery stores and dental offices.

Barilla’s office takes an active role in encouraging the growth of the retail sector, including having a team dedicated to recruiting tenants and educating brokers on the strengths of the market and availabilities that retailers can take advantage of.

In order to attract retail that will enrich the area, Downtown Orlando has also established financial programs to incentivize tenancy. White Rabbit and Trophy Room are examples of tenants that have participated in the retail stimulus program, which offers assistance with initial tenant improvements. Says Barilla, “we can partner with them, currently, up to $75,000…plus an additional $25,000 for the first year’s rent.”

In the nearby Lake Nona master-planned development, Tavistock Development recently submitted site plans to the city for a 405,000-square-foot shopping center called Lake Nona West. The property will sit on 54 acres and feature open-air shops and outdoor entertainment spaces.

Elsewhere in Florida, the government sector is similarly adopting a proactive approach to retail growth. Cupkovic points to Phase II of Celebration Pointe in Gainesville, which in large part consists of the development of a sports facility totaling roughly 200,000 square feet. According to Cupkovic, obtaining local county funding was instrumental for the project, dubbed Alachua County Sports & Events Center.

Totaling 1.5 million square feet, the overall mixed-use development is owned by Celebration Pointe Holdings LLC and is the vision of Svein Dkyrkolbotn, principal owner of Viking Cos., as well as Ralph Conti, owner of Ra Co Real Estate Advisors.

High (demand) and low (vacancy) 

Cupkovic, who has worked on the Celebration Pointe development since 2015 when he completed the master plan for the project, says that tenant interest is strong. Le Macaron recently moved into a larger space at the development, hosting a grand reopening in July of this year. Frozen cocktail concept Fat Tuesday and Peach Valley Café also recently joined the tenant lineup.

Such interest aligns with the overall low vacancy levels throughout the state of Florida. Gallaher puts it simply, saying that “vacancy is super low.” South Florida specifically, he adds, is underserved per capita on the retail side, meaning that as a factor of square footage versus population, the ratio of retail space per person is less than the national average.

Sleiman’s McNaughton elaborates that for the South Florida region, which he considers including everything south of Orlando, the vacancy rate is roughly 4 to 4.5 percent. He estimates North Florida to have slightly higher vacancy levels, at approximately 5.5 percent.

According to market reports by Colliers for the second quarter of 2023, retail vacancy rates in the Broward County, Miami-Dade and Palm Beach counties sat at 3.5, 3.1 and 3.7 percent, respectively.

Though markets throughout Florida are universally experiencing this lower vacancy, Gallaher points out that there is some distinction between urban and suburban areas.

“Outside of the urban core, you get a little bit more vacancy,” says Gallaher.

Development drags

One reason for these historically low vacancy rates is that the supply of new space is not keeping up with demand. Much as vacancy rates are low, so too are the rates of construction.

Brett Hutchens, president of CASTO Southeast, says that his company has been able to continue on projects that were already underway, such as the redevelopment of Winter Park Village, unaffected by the interest rate hikes. CASTO Southeast, along with co-developers Bromely Cos. and Jeffrey R. Anderson Real Estate, is also underway on Midtown Tampa, which will deliver 1.8 million square feet of mixed-use space. However, he adds that “interest rate costs and construction costs will probably prohibit” other projects that might have otherwise been undertaken.

“There are very few larger retail projects being developed at this time,” adds Spratt.

Economic headwinds and higher interest rates have hit development particularly hard. Beyer says that given the cost of hard goods, labor, construction materials and capital, he is “a bit concerned about the returns for developers.” Beyer continues that it is hard to make the dots connect without a fairly significant reset in rents.

Nevertheless, they persisted

These headwinds have not, though, fully halted the development of retail spaces in the state. Colliers reports, for instance, that by the end of the second quarter of 2023, an additional 409,000 square feet of retail space was under development in the Palm Beach County market.

PEBB Enterprises is currently redeveloping Delray Landing in Delray Beach. The developer has signed 27,099 square feet in leases at the Sprouts-anchored property, which is set to reopen this summer. New tenants coming to the center include Retro Fitness, Crown Wine, Keke’s Breakfast Café and a dentist office.

PEBB Enterprises and Banyan Development also started construction on Atlantic II, a 10-acre mixed-use development in Delray Beach, in July of this year, with delivery scheduled for 2024.

Further north, Sembler Co. recently opened a new ground-up, Publix-anchored shopping center in St. Johns County. Dubbed Treaty Oaks Plaza, the development is currently being leased, with all five of its outparcels already spoken for, according to Beyer.

Sembler is also underway on the retail component of a mixed-use project called The Preserve Marketplace in Pasco County. The retail component features a Mandola’s Italian Kitchen, which is scheduled to open in a built-to-suit space in the fourth quarter of this year.

Frankie Campione of CREATE Architecture Planning & Design says that the firm is underway with the design of Winchester Orangetree, a mixed-use, ground-up development in Naples. The developer, Barron Collier Investment Partners, a joint venture between Barron Collier Cos. and Metro Commercial Development Group, is currently in the design and developmental stage. Additionally, construction is nearly complete on Founders Square, another Naples project by Barron Collier Investment Partners that will feature retail stores and restaurants, as well as residential, office and self-storage space.

Hill Partners is in redevelopment mode as well with the 297,963-square-foot Promenade at Coconut Creek, which Spratt says has been experiencing increased sales. Upgrades at the property will include modernizing the aesthetics, as well as establishing more gathering places.

Advantaged positions

It might be speculated that in the midst of the slowed development and heightened competition for space (and macroeconomic headwinds), smaller businesses could see less opportunity and be pushed out of a retail landscape populated by bigger brands and companies. Though some landlords may favor the latter, those involved with leasing in the state report a surprisingly diverse mix of national and local tenants.

Hutchens says a diverse tenant mix is a “necessary part of a larger shopping center,” though local tenants may require that landlords and those in charge of leasing “do a little more due diligence.”

Such due diligence has only become more important in the current economic environment, according to Zack McNamara, senior director of leasing with Franklin Street in Orlando.

“With everyone expecting a recession on the horizon, a lot of landlords are being a lot more cautious [with respect to] the financials of the tenants and the deals that they’re committing to,” says McNamara.

In spite of this added pressure and caution, McNamara does not hesitate to agree that landlords are currently in a privilege position, especially relative to that of tenants.

“It’s a good time to be a landlord in Florida,” he says.

Money, money, money

One reason landlords are in an enviable position? In order to secure their share of highly coveted space, retailers are paying top dollar. High increases to rent are not only the product of a lack of competition from new space, but are also a necessity for landlords in this inflationary context.

“We’re finding ourselves having to increase rents at a faster rate than the tenant community is typically accustomed to,” says McNaughton. “When you had inflation as high as 8 to 9 percent, renewing tenants with only a 3 percent increase was not keeping pace, and therefore, you’re essentially losing money on a renewal.”

This makes renewal discussions “a bit more challenging,” adds McNaughton, especially as tenants face not only markedly high rental rates, but also the higher cost to do business in the current economic environment.

In addition to inflation-based cost increases, expenses such as insurance are rising as well. McNaughton says that insurance rates are doubled in some cases.

“The cost is typically passed on to the tenant in the form of their triple-net charges,” says McNaughton.

Playing favorites (or not)

Perhaps it is a testament to the strength of retail in the state of Florida that for as many professionals you ask to identify the most successful type of retail, you will get almost as many answers.

One recurring theme highlighted by sources is the strength and ubiquity of food-and-beverage concepts. Barilla notes that of the 20 new businesses that have entered the downtown Orlando area over the past year, roughly half have been restaurants.

Gallaher also observes that among the many restaurants, smaller sizes are prevailing. Larger dining concepts ranging in size from 6,000 to 8,000 square feet are now less common. He says that in their place, multiple smaller restaurants of approximately 3,000 square feet are emerging.

These more diminutive spaces are better suited to accommodating the takeout and deliveries, says Gallaher, a form of consumption that has been more popular in the aftermath of the COVID-19 pandemic. Gallaher more specifically gestures to chicken concepts as having a moment.

“Chicken restaurants are really blowing up everywhere,” he says.

Also more popular, according to sources, is experiential retail. Brokers and developers attribute this trend to the continued post-pandemic enthusiasm for getting out of the house. By way of example, Barilla points to Proper, a Japanese-style listening bar that has opened on Orange Avenue in Orlando.

He says that the city also has “a very strong gaming and technology sector with simulation and tech,” including EA Sports. Velocity Sports, an arcade and restaurant concept, which Barilla describes as similar to Dave & Buster’s but “high-end and boutique,” is also scheduled to occupy 15,000 square feet of space in Orlando’s downtown, part of the trend of e-sports “taking shape and putting a strong foothold” in the area.

Gaming is also a central component of The Pomp, a 223-acre mixed-use development in Pompano Beach. The Cordish Cos. and Caesars Entertainment are co-developing the project, which will feature a Topgolf, Live! at The Pomp, Sports & Social, PBR Cowboy Bar and the existing Harrah’s Pompano Beach casino.

Spratt points out that “theaters are doing much better as the studios are rolling out films.” This is unsurprising in light of the recent releases of “Barbie” and “Oppenheimer,” which have thus far grossed more than $1 billion and $553 million worldwide, respectively.

The consumer preference for experiential retail manifests itself in Celebration Pointe as well.

“Shopping is not the first priority, necessarily,” says Cupkovic. “If you do go there to shop, then you’re overwhelmed by how cool the space is, so you’d like to come back and do other things like go to the restaurants, sports facility or the theater.”

Leasing News

Hill Partners, for one, aims to align its tenant mix with trends and consumer preferences.

“We are very selective and intentional in curating the right merchandising mix,” says Spratt. “Passing on very good tenants that just do not fit the overall merchandising strategy.”

Tenants at the firm’s Promenade at Coconut Creek property include Brighton, Orangetheory Fitness, The Cheesecake Factory, Silverspot Cinema, White House Black Market and Sephora.

The cosmetics retailer opened another Florida store in April of this year at the $4 billion mixed-use Miami Worldcenter, which also saw the addition of lululemon athletica.

In April, French apparel retailer Etam selected Dadeland Mall in the Miami suburb of Kendall as the site of its first U.S. store. Within Miami proper, fitness concept Club Studio signed a 38,400-square-foot lease at Grove Central, a mixed-use development underway by Terra and Grass River Property Co. in the Coconut Grove neighborhood. Scheduled to open in 2024, Club Studio joins a roster of upcoming tenants that includes Target, Sprouts Farmers Market, Total Wine & More and Five Below.

In St. Augustine, roughly 40 miles southeast of Jacksonville, a 100,000-square-foot Bass Pro Shops Outdoor World store is also set to open next year. Steinemann & Co. is the developer for the store, which is set to open in 2024.

Sunset Harbour, a retail center located in Miami Beach, also saw the addition of new tenants earlier this year. In February, Asana Partners announced leases with restaurants Casa Bufala, Sacro and Nautical Bowls, as well as Chip City Cookies and fitness and wellness club The Outsider.

Investment Sales

While leasing activity is strong, news on the investment sales front is fairly scarce, according to the brokers interviewed, another casualty of the rising cost of capital. Gallaher bluntly states that “there are not really any big transactions that might have been of note,” though he does recall the $82 million sale of Homestead Pavilion earlier this year. The property comprises 302,346 square feet in the South Florida city of Homestead.

In May of this year, Unibail-Rodamco-Westfield (URW) sold Brandon Shopping Center in metro Tampa for $220 million, with North American Development Group purchasing the 1.2 million-square-foot property with a joint venture partner.

Other transactions this year have included WS Development and PGIM Real Estate’s acquisition of The Avenue Viera, a 550,000-square-foot, open-air retail center located in Viera and situated within the 43,000-acre master-planned Viera community. Tenants at the property include AMC Theatres, Belk, Chili’s, Cost Plus World Market and Sephora, among others.

Outside of such deals, McNamara describes the investment sales activity in Florida as being “somewhat stagnant…given where the capital markets are.”

Looking ahead

There is reason to believe, following what some predict was the final Federal Reserve interest rate hike of 25 basis points in July, that such stagnation could potentially shift, though Sleiman’s McNaughton expects that the cost of capital will remain high.

Brokers and developers in Florida are hesitant to make any proclamations regarding the future of the retail sector in the state. Hutchens chuckles that “your guess is as good as mine” when asked about the outlook over the next couple of years. Similarly, Beyer wishes that he had a crystal ball and knew where things were headed.

Hutchens does add that he’s hopeful that capital markets will settle, which should encourage deal activity.

“In another 24 months, we’ll be back to some kind of normalcy,” he says.

Though McNamara qualifies that it is unclear what the next year could bring, he predicts that rental rates will remain high and construction will remain limited, which should help property performance.

“It will take a little bit of pain before some of these owners decide to start coming down and negotiating on rents, especially given the level of demand,” says McNamara. “The continued lack of new development starts will bode well for existing projects and their absorption.”

Overall, sources share this optimism for a state and market grounded in good weather, population growth and tax benefits.

— Hayden Spiess

This article was originally published in the August 2023 issue of Shopping Center Business magazine.