In spite of what you hear in the news, things are not quite as bad in the Sunshine State as they could be. Florida has been one of the worst-hit parts of the nation during the economic downturn. It entered recession earlier than the rest of the country and has had one of the worst downturns in housing prices. But there are upbeat stories to be found in some unlikely areas — the downtowns of Miami and Orlando.
To be sure, those cities are still working through the aftermath of the housing bust and neither would classify as booming, with relatively high vacancy rates and slow signs of growth. However, there's reason to believe the worst may be over in Miami. The city is seeing an influx of new residents as a result of its now lower rents, while Orlando boasts a strong employment market, supported by the in-development Lake Nona medical and research complex, the University of South Florida and that old stalwart, Disney, says Aracibo Quintana, senior vice president of the retail outsourcing group with Jones Lang LaSalle, a Chicago-based retail services firm. Those attractions are already helping the cities bring in new restaurant concepts and necessity-based stores to their urban cores. And with time, they might push Miami and Orlando downtowns to first-tier status in retailers' eyes. “Once they get past the stage of [current] foreclosure rates, they are going to come out doing well,” notes Quintana.
These signs of positivity exist despite Miami's rank as the third worst housing market in the country, with a forecasted 26.9 percent annual decline in values, according to the Housing Predictor, a market research firm. Miami experienced a mass overbuilding of condominiums during the housing bubble.
A recent study commissioned by the city of Miami Downtown Development Authority (DDA), a public/private community development organization, found that there are now 73 completed condominium buildings in Miami's downtown core, containing 21,616 units, in addition to seven rental buildings with 1,343 units and five in-progress buildings, which will add another 1,343 residential units to the market.
According to DDA's estimates, up to 8,300 units, or roughly 38 percent, of recently completed condominiums remain unsold. Meanwhile, a fair number of condos that have been sold are coming back on the market — up to 40 percent of the units in Quintana's own building have gone through either foreclosure or short sale. But the shiny new living quarters have attracted a new group of residents: young urban professionals.
“You can rent a $500,000 or even a $600,000 apartment for $2,000 a month, so it's become very attractive for 20- and 30-year-olds to live in the downtown area,” Quintana notes.
The condo developers' loss has turned into a boon for Miami's downtown, as the area is seeing an influx of service-oriented retailers that have shunned the city in the past, including restaurants, drugstores and grocers. In June, Publix Super Markets Inc. opened a 31,550-square-foot store at Miami's Mary Brickell Village. “Their sales are exceeding $2,000 per square foot,” says Jeremy S. Larkin, president and chief operating officer of NAI Miami, a commercial real estate services firm.
There has also been an influx of new restaurants, particularly of the more affordable, mom-and-pop variety, says Quintana. For example, in the past year, the Central Business District has welcomed Giardino Gourmet Salada and Ceviche House, while Rosa Mexicano and P.F. Chang's China Bistro opened in nearby Brickell.
The DDA has been trying to speed up the process, by beautifying the downtown area with tree plantings, new lighting and more attractive signage, in addition to offering to contribute 50 percent toward new retailers' facade improvement and tenant improvement costs, according to executive director Alyce Robertson.
As a result of this activity, in the first quarter of 2009, the Miami/Dade County area had a retail vacancy rate of 5.6 percent, less than half the national average, according to Colliers International. Rents in the area averaged $26.04 per square foot.
More work to do
Three of Florida's other major cities — Orlando, Tampa and Jacksonville — are not seeing housing price drops as dramatic as those in Miami. Still, all are expected to experience double-digit declines in housing values, by 13.8 percent, 13.6 percent and 11.2 percent, respectively.
The housing crisis has become a formidable obstacle in these cities' efforts to become more attractive to retailers, as the lack of strong residential populations in downtown cores has kept most national and regional stores in the suburbs, where they have historically located, according to Patrick Duffy, chairman of the retail specialty group with real estate services firm Colliers USA. With no viable nighttime and weekend clientele and constrained parking availability, most of the storefronts in downtown Tampa still belong to haberdasheries.
The retail market in downtown Jacksonville is in bad shape, according to Gary Montour, senior vice president with Colliers Dickinson, the Jacksonville-based affiliate of Colliers International. There is one grocery store, Winn-Dixie, but the rest of the retail landscape is largely made up of bars. In spite of some incentives from the Jacksonville Economic Development Commission, including grants of up to $250,000 for facade and interior structural improvements and tax credits to businesses that locate in the downtown Enterprise and Empowerment Zone, no major retail anchors have so far expressed an interest in the area, says Montour.
The vacancy rate in Jacksonville currently stands at 10.8 percent, 60 basis points above the national average of 10.2 percent, according to Colliers International. Average rents, at $15.63 per square foot, are 13 percent below the average of $18.01 per square foot for the U.S. as a whole.
The retail vacancy rate in the Tampa/St. Petersburg market, meanwhile, is at 8.9 percent. Rents in the area average $15.36 per square foot.
Duffy, who spent 26 years of his professional career in Tampa (he is now based in Houston), notes that even with all the new residential construction, Tampa's downtown never managed to evolve into the kind of 24/7 community retailers lust for, and neither did Jacksonville's.
Back in 2005 and 2006, “there was a lot of discussion about projects in the urban core, but even in a boom it's so much easier to convince a retailer to go into a traditional suburban box,” says Duffy.
Going to Disney World
Orlando, while not as robust as Miami, does seem to be faring better than Jacksonville or Tampa/St. Petersburg. It registered a retail vacancy rate of 9.3 percent and an average rental rate of $17.03 per square foot in the first quarter. But in the long term, Orlando has everything in its favor. The city is located near the campuses of a number of universities, including a regional medical campus for Florida State University, the University of Central Florida and Florida A&M Law School, among others. Orlando's employment base also benefits from the neighborhood Florida High Tech Corridor and the presence of the Walt Disney World entertainment complex. As a result, as of 2008, the median household income in the Orlando metropolitan area was $52,504 per year, compared to $50,233 per year for the U.S. as a whole.
“Metrics-wise, Orlando is a very good market — it has a very well-educated population, income levels are pretty good, the job market has historically been pretty good,” explains Quintana. “And I think [the market correction] will take less time in Orlando.”