The Tampa Bay retail market remains healthy due to strong demand from retailers and commercial buyers, but several economic realities are altering the direction of development.
Uncertainty of Rising Rates
As in other parts of the country, buyers leveraging capital are taking a closer look at deals because of the Fed rate hikes announced in December and March. This uncertainty in regards to future rate changes directly impacts underwriting and the act of raising rates affects buying power and/or income on the (potential) asset. Having said that, there are a number of 1031 exchange buyers at any given time that continue pushing values on retail assets.
Lack of New Development
Another factor affecting investment sales has been the protracted pace of new development. Projects are taking longer to gain approval from city and county agencies. One reason is that local governments are overwhelmed with residential and commercial permit applications, and some municipalities and county offices have not increased staffing in planning and permit departments to keep their operations lean.
Current land prices and a contractor labor shortage are also greatly affecting the pace of development. In order to get their asking price, land sellers have had to choose between waiting through protracted due diligence periods allowing buyers to receive project approvals and secure tenants or settle for less money in exchange for an earlier closing. The construction labor shortage has caused construction prices to increase significantly due to the high demand of skilled labor. The higher prices for land in conjunction with a labor shortage for contractors have forced retail developers to charge some of the highest retail rents ever achieved in the Tampa Bay market, which has slowed the leasing process. It has taken most retail developers longer to secure and qualify tenants everywhere willing and able to pay upwards of $40 or $50 per square foot in base rent.
Still a Robust Pipeline
Despite these impediments, some projects have made it to market and more should soon come on line. There’s a lot of buzz about Mitchell 54 West, envisioned as a town center and a pedestrian-friendly gathering space amid shops, restaurants, a movie theater, Class A office space and approximately 800 homes. Blackwater Resources, which previously developed Mitchell Ranch Plaza, will be developing this 330-acre project that will hopefully break ground this year.
Explosive residential and commercial growth along a 21-mile stretch of State Road 54 from Wesley Chapel east to Trinity in south Pasco County will attract more and more retailers. For example, Publix, which just last year opened at the Shoppes of Trinity Lakes, will soon anchor a new development one mile down State Road 54 as part of Starkey Ranch.
U.S. Highway 301, which runs north-south through Riverview east of Tampa, has also developed into a major retail corridor. Rivercrest Commons, where Publix opened an anchor store toward the end of last year, should wrap up construction of its outparcels and tenant buildouts later this year. Numerous retail developments are proposed for construction later this year along U.S. Highway 301 near Big Bend Road. Most of the projects are unanchored retail strip centers and outparcels, but they will add numerous restaurants, retailers and retail service brands to an under¬served market.
New Tenants Look to Tampa
Many existing and new retailers are looking to enter the Tampa Bay market. Grocery chains are some of the most active in the market, including Publix, Aldi, Sprouts Farmers Market, Lucky’s Market and Earth Fare. Discounters and off price retailers like T.J. Maxx and Ross Dress for Less continue to open locations. Costco recently opened two new locations in the market, adding wholesale clubs to growing trade areas.
Restaurant chains continue to be on the hunt. Some of the most active include Tijuana Flats, Mexican quick-service competitor Fuzzy’s Taco Shop, Maple Street Biscuit Co., Pie Five Pizza, Blaze Pizza, Mediterranean-inspired Zoës Kitchen, Mission Barbecue and Smashburger.
All the restaurants are chasing locations with the same characteristics – Class A space with high visibility, high traffic, good parking and ease of access. Unfortunately, most of these sites are long gone. As a result, they are moving into new developments and redevelopments throughout the market.
One such redevelopment project, The Morrison in the SoHo district of south Tampa, sits on the site of a former warehouse that had been converted into a gym. The new four-story project will have 46 apartments, approximately 7,000 square feet of office space and approximately 13,000 square feet of retail space. Retailers opening at The Morrison include newcomers Bulla GastroBar from South Florida, Zoës Kitchen and Club Pilates.
The Fourth Street corridor and the Edge District in St. Petersburg continue to evolve with redevelopment projects. Publix just opened its second store in downtown St. Petersburg. Several smaller properties within both corridors are redeveloping with more urban, walkable projects with wide sidewalks and buildings that front the street.
Finally, area malls are getting makeovers as major retailers such as Sears exit or downsize. At Tyrone Square Mall in St. Petersburg, which was built in 1972, the former Sears store will be torn down and will be replaced with multiple big box stores including the first Lucky’s Market in Tampa Bay. During the past couple of years, Whole Foods Market and Nordstrom Rack took over parts of a downsized Sears store and auto center at Westfield Countryside Mall in Clearwater.
This is part of a national trend happening with downsizing anchors including Sears, JC Penney and Macy’s that are closing unprofitable stores. Older malls still have great locations, but they must be reimagined. We’re seeing big box retailers taking part of the space and outparcels being built on the expansive parking fields or former auto centers.
The media seems to portray retail shopping malls as on the verge of death, but we are about to see malls evolve. Most regional malls across Tampa Bay are still really good real estate sites that will attract alternative users to replace potential department stores and retailers closing shops.
About the Author: As Senior Director, Brian Bern oversees all of Franklin Street’s retail leasing business development for both, the Landlord Representation division and the Retail Tenant Services Group in Tampa. He specializes in retail tenant representation, landlord leasing, disposition, land transactions, and helping developers identify sites for shopping center development.