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Crummy times ahead for retail real estate

Retailers hesitate to open new stores, and vacancies are rising.

By MARK ALBRIGHT, Times Staff Writer
Published February 8, 2008

Subcontractors frame a building at the Shops at Wiregrass in Pasco County. The Wesley Chapel mall is to open in October.
	[Janel Schroeder-Norton | Times]

BELLEAIR - Retail development typically follows the housing market. So the housing slump and what some fear is a seismic shift in consumer spending is putting the brakes on a shopping center building binge in the Tampa Bay area.

An ominous chill settled over 1,065 local retail real estate executives Thursday at an International Council of Shopping Centers dealmaking conference at the Belleview Biltmore Resort when a speaker advised they "hunker down" for bad times.

"Right now we've got stagflation light. If the country avoids slipping into a recession or we aren't already in one, it will only be by the skin of our teeth," said John Silvia, chief economist of financial services giant Wachovia Corp.

"If you've only been in this industry a few years, the next six months will the toughest your business ever experienced," he warned. "How you handle it will determine whether you're around in five years or in bankruptcy."

While area land prices and rents have held stable, bankers are slapping developers with tighter credit terms. National retailers are cutting new store growth plans for 2009. In the meantime, the shopping center vacancy rate has been inching up as the local market tries to swallow twice as much new space as usual in 2008.

The forecast for the Tampa Bay is a not-too-bad vacancy rate of 7.8 percent for 2008, up 1.2 percent percentage points from 2006, according to Marcus & Millichap, a retail investment firm. That's better than the 10.2 percent national rate.

Economist Silvia's more pessimistic outlook stems from some new developments: dismal January retail sales numbers reported Thursday; a drop in business conditions confidence in the services industry; rising unemployment; and a Federal Reserve that cannot lower interest rates much more without fanning inflation.

Short term, Silvia warned of even tighter credit terms, depressed consumer spending and retailers getting even more reluctant to keep opening more stores. He sees the possibility of investors bankrolling Florida's retail real estate splurge steering their cash elsewhere.

Nor are there signs of any easing of the shrunken migration of new home buyers to Florida from the Rust Belt, where housing prices are depressed and layoffs are spreading.

"Tampa may be struggling but it's been helped by a diverse economy," Silvia said. "Detroit's just going down the tubes."

Joked Patricia Blasia, senior vice president of Panatton Development Corp.: "It makes me consider liquidating, chartering a 777 and just flying everybody here to Vegas."

Retailers and the shopping center industry pressured Congress for a stimulus package that includes a $600-a-person cash rebate. But the cash won't be in people's pockets for months.

An ICSC survey found two-thirds of consumers plan to use the rebate check to pay off credit-card debt. "Most of the money will go to the banks," said Michael Niemira, the shopping center group's chief economist. "But consumers do plan to spend the other $25-billion, which helps."

Developers already have been fighting to fill projects with tenants as national chain stores smarting from a dismal Christmas rethought their 2008 growth plans.

Wesley Chapel is home to 1.9-million of the 3.3-million square feet of new space opening this fall in the Tampa Bay market.

For a mall less than year from opening, leasing agents compare gathering tenants to herding cats. In Pasco County alone, there are three mall-size projects elbowing for tenants just as most national retailers in January scaled back future store growth and reaffirmed all store deals in once-hot suburban housing markets for 2008.

"We had to call them all, but we didn't lose anybody," said Jim Richardson, vice president of Forest City Enterprises. The developer plans to open the Shops at Wiregrass at Bruce B. Downs Boulevard and State Road 56 at the end of October more than half full. "It's a recognition this will be the powerhouse project in this area," he said.

The $130-million Main Street-style shopping center, which includes a Banana Republic and the second Apple store in the region, was to open in August. But Forest City added a 500-space parking deck and wanted to open with both Dillard's and Macy's in addition to a JCPenney that's already there.

While 2008 store growth plans are firm, 2009 is unsettled until retailers get a fix on how long consumers feel squeezed and continue holding back on discretionary spending.

Publix, Wal-Mart and Sweetbay Supermarkets recently pulled out of prospective deals for stores in new suburbs that were to open in 2009 in Hernando and Pasco counties. Developers delayed by a year to 2010 the Largo Town Center, the proposed Chelsea Premium Outlets in Pasco and, in Sarasota, both University Town Center and the Bayside retail project downtown.

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

[Last modified February 7, 2008, 23:12:50]