A year after Spanish billionaire Amancio Ortega made a record-shattering purchase on Lincoln Road — paying $370 million for an entire block — some of the enthusiasm for the retail district has waned.
“Two years ago, we were showing space on Lincoln Road every day,” said Stephen Bittel, chairman of Terranova, the largest retail property owner on the street. “Now it’s twice a week.”
Justin Greider, a vice president at JLL, echoed the sentiment, saying that vacancies are taking longer to get leased up, with some spaces sitting empty for up to 15 months. And some lingering vacancies remain, particularly on the east end of the popular retail street.
Owners have been dropping asking rents, which have declined to about $275 to $325 per square foot, down from $350 to $450 at the start of the year, according to Greider. That followed a long streak of rising rents dating back to 2010.
“If anything, supply is greater than demand right now,” said Drew Schaul, an executive vice president at RKF who represents several properties on Lincoln Road.
For the moment, though, there’s still plenty of money pouring into the fashionable Miami Beach shopping district. The area is still a very attractive location for retailers, said Manny De Zarraga, an executive managing director at HFF. He ranked it among the top shopping, dining and entertainment districts in the world because of the volume of visitors.
“Ten million people may walk Lincoln Road a year,” he said. “It’s tough to find even regional malls that come close to that traffic.”
New buildings are rising up, and retailers are still moving in. A new convention center nearby, as well as a master plan to redevelop the district, may also bode well for the future.
And despite soaring retail rents in recent years — pushed higher by the prices that new owners were paying for buildings — current retail occupancy rates remain relatively high. Greider estimates the rate to be around 90 to 92 percent, compared with 96 percent overall in Miami Beach.
“The market has found its peak for right now. We have had an incredible run up on rents in the past three to five years — unprecedented rent increases,” Greider said.
But Lincoln Road retailers appear to have reached the threshold of what they can sustain.
To put things into perspective, Greider said, Lincoln Road’s market for retail space is mirroring what’s happening on other high streets in major cities around the world, as retailers adjust to the Internet age.
Here are some of the biggest recent moves on Lincoln Road.
Comings and goings
In one of the most notable deals of late, Pottery Barn and Williams-Sonoma (which are owned by the same company) plan to open new stores at 1691 Michigan Avenue — considered part of the Lincoln Road shopping district — by the end of 2016. Last year, both stores closed their locations directly on Lincoln Road.
Two blocks away, Marshalls is planning to open a new store at 723 Lincoln Lane, where Terranova Corp. is completing construction on a new 42,000-square-foot building. And, around the corner, both Nordstrom Rack and Old Navy are said to be eyeing space that Macy’s will be vacating at 1675 Meridian Avenue.
At 1111 Lincoln Road, developer Robert Wennett is building an extension with 10,000 square feet of new retail space. Construction is expected to be completed at the beginning of the year, with tenants opening in the spring. The space has been fully leased to five tenants: Rosetta Bakery, the coffee shop La Colombe, the apparel retailer Alchemist, the gift shop Jo Malone and Chotto Matte, a restaurant chain based in London.
Vornado, which owns the nearby 1100 Lincoln Road, is installing new storefronts. Anthropologie is moving out of this location, to a new building that Terranova is developing at 801 Lincoln Road. Anthropologie’s current storefront will likely be split into smaller spaces.
A few blocks away, David Edelstein’s TriStar Capital is redeveloping the former ArtCenter South Florida at 800 Lincoln Road. The building is now under construction and will have three stories, with 8,400 square feet indoors and an 1,800-square-foot rooftop terrace.
Aaron Butler, president and CEO of Avenue Real Estate Partners, represents that building and another TriStar building that is also being redeveloped at 500 Lincoln Road, adjacent to the Miami Beach Community Church. That location will have 15,236 square feet and is expected to be completed in mid-2018.
Butler said that leasing has definitely slowed. But he expects the opening of the Nike flagship store at 1035 Lincoln Road to kick-start the local market. “That will be a big catalyst for Lincoln Road,” he said, adding that the “convention center will ignite and bring back the excitement to Lincoln Road.”
Other property owners and brokers also point to the new Miami Beach Convention Center and Lincoln Road master plan as a source of optimism.
The master plan, designed by New York landscape architects James Corner Field Operations, will overhaul Lincoln Road by enlarging sidewalks, adding extensive landscaping and turning some side streets and back alleys into pedestrian shopping venues. Construction is expected to begin in early 2018.
The district’s tenant mix continues to evolve as well, with higher-end retailers gravitating toward the west side — near the Herzog & de Meuron-designed 1111 Lincoln Road — and bargain retailers such as Forever 21, H&M and Zara toward the east.
A healthy mix of food and beverage tenants are also critical to the success of Lincoln Road. Long-time property owner Ben Brody noted, however, that restaurateurs can’t spend as much as many national and international chains are willing to pay on rent.
“I want the best mix. I want the best-quality tenant that contributes to the viability of the street,” he said, “and if that means we don’t take the highest rents, then that is OK.”
Brody’s family has owned 1000 to 1014 Lincoln Road and 1020 to 1022 Lincoln Road since the 1970s and 1980s, buildings purchased at prices as low as $12 and $25 a square foot. He said that because of low costs, they can afford to be flexible with leasing rates.
His tenants include Mayors Jewelers, Club Monaco, 7 For All Mankind, John Varvatos and restaurants Quattro Gastronomia Italiana and Balans. He said he had just worked out a deal with Quattro to stay for several years.
As many other property owners have poured money into buildings on and around Lincoln Road, the district’s average rents have risen dramatically. But Boris Kozolchyk, executive vice president of retail services at Colliers International, predicts that lease rates will stabilize at about $250 per square foot. “Lincoln Road is at a transition point, and the challenge is to determine what it is going to be,”
Michael Comras calls the resistance that landlords are encountering to rent increases a “natural leveling off.”
It’s been a year since Comras and Jonathan Fryd sold the odd-numbered units from 1001 to 1035 Lincoln Road to Ortega. Comras still owns properties on the thoroughfare, including 701 Lincoln Road, leased to Forever 21, and 738 to 744 Lincoln Road, leased to BCBG. He also owns a parking lot on Lenox Avenue that he plans to redevelop. His firm, Comras Company, also represents other Lincoln Road property owners.
“Retailers need to make money and landlords need to get a return on their investments, and right now there’s maybe a little disconnect,” he said. “The retailers are adjusting their sales expectations, and rents will find their level.” TRD