Miami is coming into its own as an increasingly international city that continues to attract new residents, visitors and investment and development activity. The city’s urban core is flourishing, with residents gravitating toward a downtown area that allows them to live, work and play in the same neighborhood.
The Miami retail market is experiencing a development surge to accommodate the city’s growth. Through the end of the first quarter of 2016, about 2.3 million square feet of retail space was under construction, according to CoStar. The developments are bringing a new class of retailers to the market. Major projects include Brickell City Centre, a 500,000 square-foot shopping center with a roster of tenants that includes Armani Collezioni, anchor tenant Saks Fifth Avenue and Valentino. North of downtown Miami, the $1.7 billion Miami Worldcenter project will introduce a high-street retail concept that is similar to the popular Lincoln Road open-air mall in Miami Beach. In Miami’s Design District, the $1 billion redevelopment of the neighborhood is attracting luxury retailers like Hermès, Louis Vuitton and Cartier. Downtown residents will have easy access to all of these retail destinations.
Retail operating fundamentals remain strong in the Miami market. Vacancies closed the first quarter of 2016 at 3.3 percent, which was unchanged from the previous quarter and slightly down from 3.4 percent in the first quarter of 2015. The market experienced 94,215 square feet of positive net absorption in the quarter. Average asking rents rose 59 cents year-over-year to $32.62 per square foot in the first quarter of 2016. Rents declined from the $33.90 per square foot average from the previous quarter, however.
Sales volume substantially increased from 2014 to 2015. In 2015, the Miami market had 53 sales totaling $1.4 billion, for an average of $535.35 per square foot. The market had 45 sales totaling $838.85 million — or an average of $458.22 per square foot — in 2014. Among the notable retail property transactions was the $370 million sale of an entire block of Lincoln Road to Spanish fashion billionaire Amancio Ortega.
That sale was one of the largest in Miami’s history and underscores how international investors are willing to pay unprecedented prices to gain a foothold in the market. Lincoln Road is one of the most expensive retail corridors in the nation, with rents consistently exceeding $300 per square foot.
Led by the 1.5 million-square-foot Dadeland Mall, the Kendall submarket is Miami’s largest at 19.1 million square feet. Retail vacancies ended the first quarter of 2016 at a razor-thin 2.6 percent, down from 3.2 percent year-over and 3.1 percent in the previous quarter. Average asking rents rose year-over-year from $33.38 per square foot to $33.89 per square foot in the first quarter of 2016. With no construction in the pipeline, the submarket’s operating fundamentals should continue to be strong throughout 2016.
Despite the popularity of Lincoln Road, the Miami Beach submarket had a sharp decline in year-over-year average asking rents, from $65.12 per square foot to $57.93 per square foot. Vacancies nudged upward from 5.1 percent in the first quarter of 2015 to 5.4 percent in the first quarter of 2016. The submarket has a total existing inventory of 7.32 million square feet, with another 110,454 square feet under construction.
In the Aventura submarket, available retail space is nearly impossible to fnd. The submarket vacancy rate is consistently at or around 1 percent. Average asking rents did slip year-over-year from $34.93 per square foot to $32.31 per square foot in the frst quarter of 2016. The Aventura Mall, Florida’s largest shopping center, is in the midst of a 300,000-square-foot expansion that should attract a slew of new retailers and restaurants. That represents a signifcant addition of leasable retail space for a submarket with 6.2 million square feet of existing inventory.
Going forward, a potential concern for Miami is whether the retail market can sustain the deep pipeline of new construction. One proposed project, the $4 billion American Dream Miami planned for northwest Miami-Dade County, would bring another 3.5 million square feet to the market. Another trend worth monitoring is the rising cost of rents in Miami and how that could impact consumer spending ability. According to Zillow, Miami’s median rents are $2,151, which represents more than 78 percent of the median income of $33,006 per year.
These short-term issues should not leave retail observers concerned about the long-term viability of the Miami market. Population growth and increased investment and tourism activity are expected to continue, especially in the urban core. The demand for retail should remain strong.