With the stunning transformation of Wynwood and the Design District in recent years, it’s easy to believe that Miami’s retail market is only headed up.
But a new second quarter report from commercial brokers Colliers International shows there’s softness to be found in the Magic City’s retail sector.
Meanwhile, Broward and Palm Beach counties enjoyed another healthy quarter of growing rents and tenant demand.
There’s uncertainty in the air for Miami’s retail market, which has boomed in recent years as neighborhoods like Wynwood, the Design District and Brickell became established shopping destinations.
For the second quarter, rents for Miami-Dade County as a whole actually fell 1.64 percent from the first quarter to an average of 31.25 percent, according to the Colliers report.
That could partly be explained by turnover in markets like Lincoln Road, Miami’s most expensive shopping district in terms of rental rates. New vacancies on the high-profile strip, where asking rents average roughly $170 per square foot, are likely to have a much more significant impact on the market as a whole opposed to less-expensive neighborhoods.
But while rents across Miami-Dade took a slight hit, according to the report, absorption and vacancies continued to improve. Tenants ate up 175,200 square feet of space during the second quarter, pushing vacancy rates down to 3.1 percent.
With an absorption spike of nearly 20 percent, according to the report, there’s still high demand for areas like Aventura, Coconut Grove, Brickell and Wynwood. That demand will have to keep up if the county expects to absorb the roughly 2.1 million square feet of retail space that’s now under construction.
Decreasing rents did not seem to deter investors, who made a slew of big-ticket purchases in the past three months. The largest of those was Lightstone Group’s $29 million purchase of a three-property portfolio in Miami Beach from Crescent Heights and Streamline Properties.
Broward County boasted South Florida’s biggest retail investment deal during the second quarter, when AEW Capital scooped up the Promenade at Coconut Creek shopping center for $85.6 million.
As noted in the Colliers report, population growth and a strong tourism industry are driving investors to buy into Miami-Dade’s northern cousin. Broward, which hasn’t relied on foreign investment as strongly as Miami, has also been shielded from fallout following Britain’s vote to exit the European Union, as well as the continuing strength of the U.S. dollar.
On top of that, net absorption rose sharply from the stagnant first quarter to 391,300 square feet, while vacancies fell slightly to 5.9 percent, according to the report. As a result of that tightening, asking rents rose 2.86 percent to $19.8 per square foot.
To try and feed that demand, developers have another 393,500 square feet of retail space under construction, with new developments line the 650,000-square-foot Plantation Fashion Mall and the 500,000-square-foot Dania Pointe projects also in the pipeline.
Tenant demand is picking up in Palm Beach County, which is now boasting its lowest vacancy rate since 2008, according to Colliers.
Net absorption held mostly static at 284,700 square feet between the first and second quarters, but vacancies continued their downward slope to a flat 5 percent. Rental rates, on the other hand, budged upward only a fraction of a percent to $19.22 per square foot.
The report said one major driver behind Palm Beach’s retail growth is investors and developers looking for favorable deals outside of already competitive markets.
Some of the most notable investment deals included California’s Edens retail company buying out the Lakeside Plaza in Boca Raton for $40.5 million, while Craig Menin’s Menin Development went on a small buying spree picking up two properties for a combined $58.6 million in a single week in June.
While new large-scale construction has been practically nonexistent in the county during recent quarters, the Alton Town Center development is slated to bring 400,000 square feet to Palm Beach Gardens, plus the Swinton Commons in Delray Beach and the Shops at Indian Trace near Palm Beach are both promising to deliver more than 100,000 square feet of new space each.