South Florida will continue to see outsized growth in retail rents through 2024, according to an analyst from the CBRE Group.
Brandon Isner, CBRE Americas head of retail research, said a lack of inventory, coupled with South Florida’s popularity as a place to live, work and visit, will push rents upward faster here compared to other parts of the U.S, despite rising interest rates.
“South Florida is one of those places, like Las Vegas or Nashville or New York, that has a unique culture that is recognizable globally,” Isner said. “… I think that is what attracts so many tourists here and we are seeing notable activity of companies relocating here.”
Asking retail rents have risen significantly since the pandemic in South Florida, according to figures from CBRE.
As of the second quarter, net asking rents for retail properties in Miami-Dade in 2022 average $41.67 a square foot, a 17% increase from 2019. In Broward County, asking rents went up about 23% to $28.72 a square foot between 2019 and 2022. In Palm Beach County, they increased about 26% to $29.16 a square foot.
By the end of 2022, retail rents in Miami-Dade County are projected to rise 4.8% in Miami-Dade, 6% in Broward, and 7% in Palm Beach County compared to last year, according to CBRE Econometric Advisors. In contrast, retail rents nationwide are expected to rise 3.7% by year-end.
Thereafter, South Florida’s retail rents are anticipated to rise at greater rates than the rest of the U.S.
By 2024, year-over-year retail rents are expected to rise 4% in Miami-Dade, 4.1% in Broward, and 3.9% in Palm Beach County. For the national average, the year-over-year increase is expected to be 2.9%.
Isner said the increase in retail rents is at least partly to do with people and out-of-state companies moving into the South Florida region since the pandemic.
“There’s a lot of office-based activity of companies moving down here. That’s kind of unique as well. Some office markets are struggling, but here, the office market is booming,” Isner said.
That office activity is primarily driven by companies opening branches and regional offices, particularly in high-demand areas such as Miami’s Brickell Financial District and West Palm Beach’s central business district. However, some companies are moving their headquarters to South Florida, such as Citadel, a multibillion dollar hedge fund that’s relocating from Chicago to Brickell.
South Florida’s retail real estate will also benefit from a growing number of tourists visiting South Florida, Isner said.
Between 2022 and 2024, hotel room occupancy in Miami-Dade County is projected to be between 73.5% to 76.5%.
In Broward, hotel occupancy is expected to range from 71.1% to 77.1%. In Palm Beach County, occupancy is anticipated between 64.9% and 72.3%.
In contrast, between 2022 and 2024, the Top 10 U.S. metro markets can expect hotel occupancy to average between 73.3% to 76.5%, according to CBRE. Those markets include Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, New York, Philadelphia, Phoenix, and Washington, D.C.
There’s also evidence that restaurants in South Florida are doing better business-wise than some other places around the U.S., Isner said, potentially allowing business owners to better handle rent hikes.
“In South Florida, restaurant [revenue] is 30% or 40% what they were prior to the pandemic, but in New York, they’re still 30% or 40% under where they were,” Isner said.
Isner said the difference in fortunes have to do with South Florida’s business-friendly environment and outdoor seating virtually all year long.
“One of the wonderful things about being a restaurant operator here is that you have outsized dining. Even during warm weather, the outdoor patios are filled … A lot of that is what helped early on in the pandemic,” Isner said.
Retail store operations are also strong, with total sales in South Florida growing by 7% year over year in 2021 to a record $9 billion, according to a recent CBRE report.
While CBRE’s outlook is positive, analysts from MyEListing, an Austin, Texas property technology company that lists commercial properties for sale or lease, recently came out with a study that says rent for new retail spaces in Miami could drop by as much as 25% in the next couple of quarters.
“Companies in primary markets like Miami are largely reassessing their supply chains and logistics strategies due to pandemic-related disruptions and the rise of e-commerce,” said Nate Barber, digital PR specialist for MyEListing.
Should rents rise higher, however, it could “squeeze potential tenants out of the market and force them to look elsewhere,” Barber said.
Attorneys have told the Business Journal that some retail landlords are trying to force out longtime tenants to get more lucrative leasing contracts with out-of-state restaurants and stores moving into the region.
Nevertheless, CBRE’s Isner said there’s rising demand from restaurants, stores, and other retail users for space. Unfortunately, there isn’t enough space to accommodate them. And not just in South Florida, but most places in the U.S.
“There’s been a quite noticeable lack of [new retail construction] across the U.S. for the least 10 to 12 years, since the great financial crisis,” Isner said. “It has created a market where retailers are in expansion mode but it has become difficult.”
As a result, landlords have been in a great position in lease negotiations, especially in South Florida, where new land is scarce, Isner said.
That fact hasn’t been lost on real estate investors. In 2021, there were $3.4 billion in retail property transactions, the highest annual volume since 2015, according to CBRE. Between January and August of this year, there were just over $3 billion in retail property transactions.
“That is almost 150% ahead of the cumulative pace for 2021,” a CBRE spokeswoman said.
Even the rise of e-commerce hasn’t adversely affected retail demand thanks to the influx of visitors and new arrivals coming to South Florida, Isner said.
“I think it’s that unique culture that is a driver of people wanting to come here and experience it themselves,” Isner said, later adding: “It is not just retail real estate where the rents have risen, it is everything else. It is a very good time to be in South Florida.”
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