The business and employment gains in the Tampa Bay market are helping landlords attract new retail names to the market to fill space and subsequently raise rents. The area shows good signs of a healthy market, with strong leasing activity and a growing need for new development.
The retail vacancy rate continues to drop, ending 2014 at 6.3 percent versus 6.9 percent in the first quarter of that year, according to CoStar. Rents are positively going the other way, rising to $13.73 per square foot from $13.57 per square foot over the same time periods.
Space is extremely tight in some submarkets, just 2.1 percent in south Tampa and northeast Tampa, and 4.5 percent in the larger I-75 corridor at the end of last year, according to CoStar.
The lack of space can be attributed in part to the slow pace of new construction. Developers and their lenders are being more cautious, having learned lessons from the last recession. At the same time, a number of new concepts, all of which are good for the market, are arriving in Tampa Bay.
The current situation puts landlords in even more control than they had last year. They’re using this period to raise rents to make up for revenues not realized in earlier years when the market was much softer. We’re entering a phase where rents are reaching, and sometimes exceeding, pre-recession levels for Class A space while nearing that for Class B space.
But retailers have gotten smarter since the recession and are being conservative on how much they are willing to pay. Some are holding off on entering the market until they find space that fits their budgets and needs.
A strong retail market has encouraged new projects: a 441,000-square-foot outdoor outlet center in Wesley Chapel that’s scheduled to open in October; the 880,000-square-foot University Town Center mall that opened last October in Sarasota; the Bass Pro Shops still under construction and Top Golf that opened in December in Brandon; and active redevelopment projects now underway in Largo like Tri-City Plaza and Midway Plaza.
The last reflects the push for remaking space due to a lack of quality locations for new construction. Redevelopments today are better planned and have better parking and visibility. They are also sitting on expensive land. We’ve yet to see whether retailers will sustain the level of sales required to pay the kinds of rents landlords are asking for these projects.
One of the more anticipated projects is the proposed $1 billion development in the Channelside District in downtown Tampa along the waterfront and the area surrounding the Amalie Arena where the Tampa Bay Lightning play. The highly anticipated development will combine entertainment, sports, new office towers, a new campus for the University of South Florida (USF) medical school, hotels and residential all on roughly 40 acres, including the redevelopment of Channelside Bay Plaza. The initial phases of the project will break ground later this year, with a projected five-to-seven year build-out.
The Bass Pro and Top Golf stores mark the arrival of a key trend in the Tampa Bay market: experiential retail. They will join Studio Movie Grill, which opened in October at University Mall near USF and other forward-thinking retailers such as lululemon with their yoga classes and Apple with the Genius Bar. At International Plaza and Bay Street in Tampa, Restoration Hardware is building a 40,000-square-foot flagship store with fully furnished rooms, rooftop gardens, a restaurant and other amenities.
A skating rink in Pasco County, which will be one of the largest in Florida, will attract visitors and tournaments. It broke ground in February, and hotels, restaurants and stores are expected to follow to cater to the influx of consumers.
The recession certainly derailed retailers’ plans to enter the Tampa Bay market years ago, but with a stronger economy and government agencies attracting companies and pushing other businesses to expand, retailers feel more confident.
The numbers give them comfort: the Tampa Bay unemployment rate has plummeted to 5.5 percent in December from a peak of 12.5 percent in January 2010; Citigroup is adding 1,100 workers; and the state is trying to recruit Johnson & Johnson to open a facility with 700 jobs that pays above-average salaries.
A healthier economy is also attracting new restaurant concepts that range from upscale to quick service. For example, Tampa has seen an influx of Mexican restaurants such as Bartaco in Hyde Park Village, Hablo Taco in Channelside Bay Plaza, Besito at Westshore Plaza and the expansion of California Tacos to Go.
Fresh food is also the attraction at the growing number of specialty grocers, especially organic stores. Whole Foods and The Fresh Market continue to expand, and Sprouts Farmers Market, Lucky’s Market and Earth Fare are scouting sites. Locale Market in St. Petersburg at the newly renovated Sundial is an example of a local specialty grocer that is well worth a visit.
Other dining arrivals revolve around chef-driven concepts such as Fodder & Shine, which features Florida Cracker food using natural ingredients, and Bourgeois Pig, a New Orleans-style establishment. Ulele opened last year at Tampa Riverwalk and has quickly become one of top 10 requested restaurants on OpenTable. Roux, also modeled on NOLA cooking, is a hard reservation to get.
Consumer demand and retailer appetite for the Tampa Bay market will continue to reduce the supply of available space until development catches up. It takes a while to line up tenants and obtain proper financing. Builders must also find the right land; when they do, they unfortunately seem to face longer time periods to receive approvals from local government and lenders.
In the interim, retail centers are being transformed. The closing of many Radio Shack stores and downsizing of Sears and Kmart locations are being viewed as opportunities instead of a downside. Landlords have opportunities to upgrade their tenant mix to better suit today’s consumers’ tastes and shopping experience. This is a natural evolution, and in my opinion it’s a healthy one for Tampa Bay.
— By Brian Bern, Senior Director, Franklin Street Real Estate Services. This article originally appeared in the May 2015 issue of Southeast Real Estate Business.