Fort Myers, recognized as Southwest Florida’s second-largest retail area, encompasses approximately 49 million SF. The region’s strong labor market and positive demographic trends have bolstered its consumer base, fueling consistent demand from retailers. In the past year, the market absorbed 390,000 SF of retail space, bringing vacancy rates to a decade-low of 3.0% by the third quarter of 2023. This marks 12 consecutive quarters of positive retail absorption. However, leasing activities face limitations, with vacancy rates now below 3%. The first half of 2023 saw a decrease in leasing activity, with approximately 410,000 SF leased, down from over 650,000 SF in the same period of 2022.
The construction pipeline in Fort Myers is currently more subdued compared to its peak in early 2021. Around 99,000 SF was delivered in the past year, with an additional 230,000 SF under construction, significantly lower than the 470,000 SF peak. Ninety-five percent of the current pipeline already being leased clearly demonstrates the shift in development focus, highlighting a strategic move towards preleased and build-to-suit opportunities. Despite the tightening lending market and economic uncertainties, retail asking rents have increased by 4.7% year-over-year to $21.00/SF, maintaining Fort Myers’ position as one of the most affordable retail areas on Florida’s West Coast.
Page Contents
Leasing Dynamics
Supply and Demand Balance
In Fort Myers, the balance between supply and demand for retail space has been a notable trend. Over the past year, the market has experienced limited supply additions, with demand consistently outpacing supply for four consecutive quarters. The 390,000 SF of positive absorption recorded over the trailing 12-month period actively reflects this trend. However, the first half of 2023 saw a slowdown in new retail move-ins, primarily due to the extremely limited availability of space.
Vacancy Rates and Leasing Activity
As of the third quarter of 2023, Fort Myers’ retail space vacancy rate reached a decade-low of 3.0%, a decrease of 0.6% year over year. A corresponding reduction in leasing activity has accompanied this decline in vacancy. Total leasing volume in the first half of 2023 dropped by 40% compared to the latter half of 2022. Since 95% of the current pipeline, which encompasses 230,000 SF of space, is already preleased, it is unlikely to affect the vacancy rate significantly. Consequently, CoStar forecasts that Fort Myers’ vacancy rate will hover around 3% for the foreseeable future.
Retail Rent Growth
Current Trends and Comparisons
Fort Myers has witnessed a robust growth in retail rents, registering a 4.7% increase year over year as of the third quarter of 2023. While this growth represents a slight deceleration from the nearly 6% high experienced in the third quarter of 2022, it still notably exceeds the national average of 3.5%. This indicates a strong and resilient retail market in Fort Myers, even amidst broader economic fluctuations.
Segment Performance and Geographic Variations
Specific segments within the Fort Myers retail market have shown exceptional performance. Free-standing retail, neighborhood, and power centers have led the market, with asking rent gains surpassing 5%. This outperformance suggests a robust demand for these types of retail spaces, driven by consumer preferences and shopping patterns in the area. Additionally, the City of Fort Myers and its northern regions have observed the most pronounced increases in asking rents. This geographic variation highlights the uneven nature of retail rent growth across different areas, underscoring the importance of investors and retailers considering location-specific dynamics when making strategic decisions.
The Evolving Role of New Retail Construction
Recent Trends and Construction Activity
In recent quarters, the role of new retail construction in the Fort Myers market has seen a shift, though it continues to be a significant market driver. The year 2023 has marked a notable uptick in construction starts, with approximately 140,000 SF of new retail space breaking ground. However, this growth has yet to be consistent throughout the year. In the second quarter of 2023, less than 15,000 SF commenced construction, marking a decade low for quarterly retail starts in the area. This decline reflects the rising costs of capital, both in physical and financial terms, which are likely to restrain speculative retail development in the near future.
Current Construction Pipeline and Leasing Trends
Despite these challenges, the construction pipeline remains active. Currently, about 230,000 SF is under construction, following the delivery of 99,000 SF over the past 12 months. This active pipeline has witnessed robust leasing activity, with only around 5% of the space still available for lease. The largest ongoing project is an 80,000-SF building located next to a Sam’s Club. Notably, the Cape Coral area, the second-largest retail submarket in Fort Myers, concentrates much of this construction activity. This concentration suggests a strategic focus on areas with high growth potential or underserved markets.
Implications for the Market
The trend towards build-to-suit projects in the active pipeline indicates a cautious approach by developers, aligning construction with confirmed demand to mitigate risks associated with speculative development. This shift is likely a response to the changing economic landscape and the increased cost of capital. This trend underscores the importance of strategic partnerships and thorough market analysis for investors and retailers to identify and capitalize on viable development opportunities in the Fort Myers retail market.
Retail Investment Trends
Current Investment Climate
The Fort Myers retail market continues to attract investor attention, though at a moderated pace compared to the record highs of 2021. Factors such as rising interest rates and economic uncertainties have contributed to a slowdown in retail sales volume through mid-2023. The market has seen approximately $354 million in retail investment sales over the past year, with a significant portion occurring in 2022. In the first half of 2023, investors recorded less than 40% of these sales, indicating a cautious approach.
Investor Profile and Major Transactions
Institutional capital has traditionally played a minor role in Fort Myers’ retail market, accounting for less than 70% of all buyers in the past five years. This trend has become more pronounced over the last 12 months, with private buyers now representing nearly 85% of retail investors in the area. The scarcity of sales over $25 million further underscores the 
limited presence of institutional capital. A notable transaction in the past year was the sale-leaseback of Jo V’s Farmers Market, a 50,000-SF grocery store, which traded for $26 million ($520/SF) in November 2022.
Focus on Single-Tenant, Triple-Net Investments
Private investors have shown a strong preference for single-tenant, triple-net investments, which have become the most traded asset type in Fort Myers. Numerous transactions involving fast-food restaurants and gas stations exemplify this trend. For example, in March 2023, an Ocala-based investor acquired a Taco Bell on Lee Boulevard for $3.3 million ($1,583/SF) at a 6% cap rate, slightly below the market average of 6.4%.
Market Resilience and Future Outlook
Despite the slowdown in investment volume, the Fort Myers retail market remains relatively insulated from the trends affecting institutionally reliant markets. The market has consistently maintained a quarterly investment volume of at least $50 million over the past 12 quarters. However, investment sales will likely remain below 2021 levels until the market gains more confidence, especially concerning the anticipated peak in interest rates in the latter half of 2023. This cautious optimism reflects a market adapting to the evolving economic landscape, with private investors playing a pivotal role in sustaining retail investment activity in Fort Myers.
Closing Remarks
In summary, the Fort Myers retail market presents a unique landscape for investors, characterized by its resilience and evolving dynamics amidst broader economic shifts. While the pace of investment may have moderated from its peak in 2021, the market continues to offer valuable opportunities, particularly in niche segments like single-tenant triple-net investments. For those looking to navigate this complex and dynamic market, expert guidance is crucial. We encourage investors and stakeholders to reach out to Lumicre for comprehensive support and insights in commercial real estate. With a deep understanding of the local market and a commitment to tailored solutions, Lumicre stands ready to assist with all your commercial real estate needs in Fort Myers and beyond.