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Retail builders happy, for now

Plenty of shopping space is in the pipeline, but some wonder if the pace can continue.

By MARK ALBRIGHT
Published August 16, 2005

ORLANDO - People concerned about a residential real estate bubble overheating in Florida have some new company.

Retail shopping center developers, who have been on a building binge of their own, are beginning to wonder just how long their good times can roll.

An ever rising tide of expansion-minded retailers, comparatively easy credit and eager foreign investors have fed a Florida retail development boom that led all 50 states last year. But some voices of restraint were heard over the giddiness here Monday at the annual Florida dealmaking session of the International Council of Shopping Centers.

"We have gotten to a point where the industry needs a new discipline to be more cautious," said Michael McCarty, president of community center development for Simon Property Group, a major Florida player and the nation's second-largest mall owner. "With the amount of projects that are now in the pipeline, there are bound to be mistakes."

Such a rush can lead to overbuilding, which undermines rental rates.

Indeed, the pace of retail development across the state has stepped up dramatically in the past year. Last August, 56 projects bigger than neighborhood shopping centers were on drawing boards. This year, developers announced 34 more projects that will add 21-million square feet of centers to a development pipeline already bulging with 42-million square feet of retail projects.

In Florida, the increased demand is coming from retailers such as JCPenney and Sears trying to get out of malls, while others such as Target, Best Buy and Dick's Sporting Goods attempt to get in them. Developers are also finding new home goods stores such as World Market and Anna's Linens that are designed to revive big-box spots vacated by Kmart and Winn-Dixie. Lifestyle centers such as BayWalk and Channelside are popping up all over the suburbs. Condos and downtown areas are reserving space for Florida's first big dose of new ground floor retail in decades.

Plus, there is the continued rush to paper New Tampa, Wesley Chapel, Riverview and Race Track Road near Oldsmar with their first generation of retail.

A flood of new types of quick-serve restaurants is spreading that includes McDonald's Chipotle Mexican Grill, Firehouse Subs, Pei Wei Asian Diner, Doc Choy's and Mama Fu's Asian House. Also looking for space is newcomer the Grape, an Atlanta start-up that uses an elegant setting to sell finger food and fine wine in 2-ounce samples. The chain recently opened its first of several Florida stores in Jacksonville.

To be sure, experts say the spurt of surplus space in the three- to five-year development pipeline is not yet out of balance with demand. As long as Florida keeps drawing 300,000 new residents annually, the state normally absorbs as much as 7-million square feet of new retail space a year. That means the development pipeline is now filled with about eight years' worth of annual demand growth. Experts are not concerned yet because Florida's relentless population growth has made the state a forgiving place for shopping centers built years before they were surrounded by new suburbs.

It's one reason why, despite all the new shopping centers, quality retail space is tighter than a tick. In the Tampa Bay market, the vacancy rate is 7.25 percent and average rental rate is $13.79 a square foot, according to Trammell Crow Co. Through the first half of 2005, leasing tripled over the previous six months to the highest volume since 2001.

"It's getting expensive out there," said Ron Sacino, co-owner of a St. Petersburg-based formalwear chain. He said landlords who wanted $20 to $25 a square foot in New Tampa 18 months ago now want $30 to $35.

Much of the local leasing activity was triggered by a flurry of branch banks, new restaurants and decisions by retailers such as Advance Auto Parts to move into abandoned Eckerd drugstores.

"The growth of new residents in Florida remains incredible, so my concern is not about demand to fill the retail space, but the continued flow of new residents to support it," said John Crossman, research director for Trammell Crow in Orlando.

While the fundamentals remain sound, there are troubling prospects. They range from gas prices taking more of consumers' discretionary income to apparel prices sagging as Asian manufacturers drive down costs. Lower prices mean lower rent for shopping center developers.

--Mark Albright can be reached at albright@sptimes.com or 727 893-8252.

[Last modified August 16, 2005, 01:29:18]