New retail? Just be careful
By MARK ALBRIGHT
Published January 12, 2007
PALM HARBOR - The yellow caution light is flashing for Florida shopping center developers.
Blame a nationwide housing slump that slowed the pace of migration to the Sunshine State, an overbuilt luxury condo market and the other usual suspects: Florida's shifting property tax burden and the ongoing windstorm insurance crisis.
Several top real estate executives and experts at a regional conference staged by the International Council of Shopping Centers on Thursday said today's choppy seas present a good time for retail developers to keep their powder dry.
Don't take on risky deals. Don't build too far ahead of the market. Closely monitor demand for existing homes and home builders who have already cut back housing starts.
There's still plenty of demand for more shopping centers. Retailers are clamoring for space. The vacancy rate in the Tampa Bay area is less than 5 percent. Investors remain eager to pour huge amounts of cash into buying healthy shopping centers in markets with big population growth potential such as Florida. The population of the Tampa Bay metro area is forecast to increase by 220,000 to 2.87-million in five years, according to Claritas, a market research firm.
Part of the pinch, however, is skyrocketing development costs. They've been soaring faster than rents which, on the average, rose 11.4 percent to $13.46 a square foot in 2006, according to REIS Inc., a research firm.
Meantime, the prices retail developers pay for land, construction and interest in Florida doubled since 2000. Impact fees to government, bills for fill dirt and property insurance premiums more than tripled, according to an analysis compiled by North American Properties Inc.
Some deals have been squelched because windstorm coverage was unavailable.
Retail real estate typically follows housing, so a cloud of caution permeates what is otherwise a bullish forecast for 2007 after a six-year boom.
"We had similar concerns at this time a year ago, but the second half turned out strong." said Justin Greider, financial analyst for Staubauch Capital Markets. "That could well happen again in 2007, but we think some caution probably would be a good thing until we see more rationality in the market."
The property tax burden and insurance crisis are hitting not only shopping center developers in the pocketbook. They also put a damper on the market for second homes and Florida residents' willingness to move. Some forecast that retail development will slow down a bit in once-torrid home-building havens such as east Pasco County and Naples-Fort Myers.
"I'm from Flint, Mich.," said Charlene Greenblatt, a leasing executive with Investment Properties Inc., in Naples. "So when I hear we might get back to normal growth in Florida that sounds pretty robust to me."
Mark Albright can be reached at firstname.lastname@example.org or 727893-8252.