As Florida Reopens, Brokers Confident Retail Closures Will Be Filled
Despite the fact that COVID-19 is still spreading in Florida — a tracking group's dashboard reported 3,266 new cases and 106 deaths on Tuesday — and warnings from health officials that there could be a resurgence in cases this fall, Florida has mostly reopened under political and economic pressures. Gov. Ron DeSantis on Friday signed an executive order bringing the state into Phase 3 of his reopening plan, lifting occupancy restrictions on restaurants and businesses.
The retail real estate market in South Florida has seemed to reflect an eagerness to get back to business. Although some business owners expressed nervousness that mask-wearing and social distancing requirements would now fall to individual establishments to decide, Florida Restaurant and Lodging Association CEO Carol Dover told the Miami Herald that bar and restaurant owners were thrilled at reopening, and patrons packed into bars and restaurants over the weekend.
Retail brokers told Bisnow that rents have stayed steady, and pandemic-related concessions have been limited.
Katy Welsh, a senior director for retail services with Colliers International in Boca Raton, said that demand has stayed strong through the pandemic and ultimately, it “opened up some space that needed to be opened up."
"Overall, we're doing pretty good," Welsh said. "In the last couple of weeks, I’m as busy as I was in 2007.”
Colliers' most recent Miami retail market report from July showed vacancies up only 0.2% from a year prior, though that figure represented 231K SF of negative absorption. Asking rents had held steady at just over $37 per SF a year ago through Q1 2020, and those had dropped to $35.98 by July. Fresher market reports for Q3 are due in about a week.
Dwntwn Realty Advisors Managing Partner Tony Arellano cited a particular demand for restaurants that have indoor/outdoor or patio space and rooftop bars.
“At the end of the day, the best locations, the best real estate is now probably worth more,” Arellano said. “An A [location] will be an A-plus, and a C will be a B."
Though local governments in Florida still retain some power to enact their own rules, DeSantis’ order specified that restaurants can’t be limited to less than 50% capacity, and if limited at all, the local government must quantify the economic impact and explain why a limitation is necessary for public health.
Even in Miami-Dade County, which was a coronavirus hot spot this summer and abided by stricter rules than other parts of the state, leaders have bent to political pressure. Schools will open next week, instead of Oct. 14 as previously planned. On Friday afternoon, Miami-Dade Mayor Carlos Gimenez said that the county would no longer be issuing civil citations for violating a mask order. An 11 p.m. to 6 a.m. curfew would remain in effect, though.
Welsh said that in South Florida, landlords have offered some concessions, but held firm on rents, confident in the ability to lease up empty space.
“If one tenant goes out, there’s another tenant going in behind,” she said.
Whereas new tenants are usually given up to 60 days to prepare the space before they owe rent, landlords might now be giving them six months, Welsh said. That’s partly a recognition that municipal building departments may still be backed up and it could take six months for inspections and permits.
But landlords have their demands, too, Welsh said. Some are requiring tenants to at least pay operating expenses while they await permits. Before the pandemic, some landlords required tenants to have business interruption insurance that would cover the tenant for six months — now, they want 12 months.
“What attorneys are putting in leases is that if there’s a legal restriction from opening, then the rent will be halved, put on pause, or deferred until they can legally open and operate,” Arellano said. Otherwise, the rent is due.
Operators like cafés and restaurants are eager to reopen and are accepting the terms, Arellano said. He is working on three or four restaurant deals, including full build-outs. Nightclubs have been insulated because they already structure their leases to ebb and flow with seasons, as crowds come and go for popular events like the Ultra Music Festival and Art Basel (both canceled this year), Arellano said.
"Those are written with multiple break points based on sales, special management fees, all kinds of things,” Arellano said.
He predicted that bars and clubs would make a quick comeback with young, healthy patrons likely to see themselves at low risk for the coronavirus — a perception reinforced by President Donald Trump, but not necessarily backed by health experts.
Dips in retail have largely been limited to certain businesses and shopping centers, the brokers suggested.
"Nobody's eating at the Cheesecake Factory in Aventura Mall," Arellano said, but open-air restaurants have been packed.
A Datex tenant track report from Aug. 31 showing rent payments from specific retailers nationwide calculated total collections at 94.1%, up from 68.5% at the end of June. Tenants most behind on payments were hair salons, gyms, movie theaters and clothing retailers.
In August, department store Saks Fifth Avenue faced a lawsuit from Miami's upscale Bal Harbour Shops over $1.9M in unpaid rent, and Matthew Whitman Lazenby, CEO of mall owner Whitman Family Development, told The Wall Street Journal that if the store is evicted, "we’ll have a whole host of other options for the space."
Famous high street shopping district Lincoln Road has seen an 8% drop in occupancy since December 2019 — 60 of its 250 storefronts are empty, the Miami Herald reported — but a pop-up program offering 90-day leases has been implemented to help tide the property over into 2021.
Nevertheless, retailers may be concerned that the pandemic could surge again and more shutdowns be enacted. The Wall Street Journal reported in August that some retail landlords have been including pandemic language in new leases that would allow them to defer rent if another shutdown is ordered.
Howard Majev, a real estate attorney with Saul Ewing Arnstein & Lehr, said that tenants with existing leases might want to look at the force majeure provisions in their contracts, but those vary from state to state, and there is currently a host of litigation over them.
It's probably not worth it for retailers to go through a lease renegotiation, he said.
"If [a force majeure clause] is well-drafted from [the] point of view of the landlord, it will exclude financial hardship," Majev said. That will make it difficult for a tenant to argue that their inability to pay rent is subject to force majeure."
The best course of action is to "knock on the landlord's door" and ask for cooperation or concessions for a few months, he said.
Welsh said that many landlords initially thought the pandemic would blow over — and still do, albeit on a longer timeline than first expected. The general consensus is to wait and see how the economy fares through the reopening phase, the election and the holiday season, she said.
“Everyone is like, ‘Wait and see,’" Welsh said. "If there’s huge fallout, by January/February, we are going to see it.”