Ten-X: Buy South Florida Retail, But Be Careful
For Miami's retail market, it's the tale of two cities: a hot suburb and a cooling Downtown Miami environment, or so predicts Ten-X in its latest US Retail Market Outlook report.
Ten-X, the online real estate sales site, placed both Miami and Fort Lauderdale among its top five buy markets in the US, forecasting great opportunities for the long haul. Improved economic conditions coupled with strong rent growth—a 17.4% jump to nearly $27/SF in Miami and a 16% climb to just over $20/SF in Fort Lauderdale by 2019—should outperform the nation as a whole.
But Ten-X's chief economist, Peter Muoio (pictured), says performance won't be consistent throughout South Florida. “There's more risk in the Miami piece of the market than the Fort Lauderdale piece,” he says. A strengthened dollar and upheaval in Latin America will put a crimp on foreign investment capital as well as tourism. But job growth in South Florida has been another story—a very positive story that has fed demand for neighborhood retailers. “Taking away that sort of foreign element...that should be a positive for hospitality and the retail that goes along with it.”
FM Capital's Aaron Kurlansky—who finances real estate acquisitions and developments—sees the story of neighborhood versus luxury retail being more pronounced going forward. As the condo market falls off a cliff here, fewer people from outside Miami will be coming with stuffed purses to shop high-end retail. “I'm actually not sure what's going to happen with the larger new luxury retail developments,” Aaron says, adding that rents will likely slow to a crawl in that category over the next year. “A lot of growth is being fueled by low interest rates right now. As debt starts to get expensive, it definitely will inflate cap rates and will hurt the growth market for sure.” Contrary, the Miami 'burbs—where the workforce has moved to live and now even work—is helping that small retail sector thrive, and he's seeing consummate interest in investors to pick up retail in those areas.
Peter notes that demographic expansion in suburban Florida—especially Fort Lauderdale, here—has returned to growth. Plus, getting new projects off the ground in Miami is tough, and has led to a constrained supply stream of new retail space. That helps up the rents in South Florida neighborhood retail centers. All are factors recognized by investors. “I think investors now have sort of shaken off the red line of the housing bust. We're seeing a transaction flow in South Florida pick up.”