In Naples, Florida, the retail real estate sector is experiencing a remarkable period of low vacancy rates. As of the third quarter of 2023, the vacancy rate has dropped to 3.6%, a decrease of 0.4% from the previous year and the lowest it has been since late 2017. This trend can be attributed primarily to limited new construction in the area. In the past 12 months, developers have completed only 55,000 square feet of new retail space, contributing significantly to the low vacancy rates. Despite a pipeline of an additional 70,000 square feet of retail space under development, pre-leasing activities have been robust, indicating that this upcoming supply is unlikely to impact the current low vacancy levels significantly. CoStar forecasts that the vacancy rate in Naples will stabilize around 4% in the foreseeable future, sustained by the limited construction pipeline coupled with consistent demand in the market.
Simultaneously, the Naples retail market is witnessing a strong performance in terms of asking rates, positioning itself as one of the leaders in Southwest Florida with a notable asking rate of $28.00 per square foot. This rate has seen a significant year-over-year increase of 5.0%, surpassing the national average growth in retail asking rates. Neighborhood centers, in particular, are leading this trend with a 5.5% increase in rent growth compared to the previous year. However, looking ahead, there is an expectation for a slowdown in rent growth, with forecasts predicting a deceleration and eventual stabilization by mid-2024. This anticipated change reflects a balancing act in the market between supply and demand, as well as broader economic factors influencing the retail sector.
Investment Activity Trends in the Naples Retail Market
Retail investment activity in Naples has maintained a steady pace, though it has yet to reach the near-historic levels observed in the second quarter of 2022. Over the past 12 months, the market has seen nearly $209 million in transactions, with a significant portion of over $75 million occurring in the first half of this year. While the price per square foot has experienced some stagnation recently, it remains high at $330/SF, notably surpassing the national average of $250/SF. This positions Naples as one of the priciest retail markets for investment along the Gulf Coast of Florida.
Notable Transactions and Buyer Trends
Private buyers have emerged as significant players in the Naples retail market this year, representing over 90% of the buyer demographic, a marked increase from the approximate 60% average over the past five years. In February 2023, a buyer acquired a Walgreens on Tamiami Trail in the North Naples Submarket for $9.8 million, which equates to $594 per square foot. Additionally, Crown Holdings Group sold the Commons on Collier to Bryer Properties for $6.2 million, or $498 per square foot. This deal closed at a 6.7% capitalization rate, substantially higher than the market’s average cap rate of 5.4%.
Demographic Growth and Affluence in Naples
Naples, the southernmost market in Southwest Florida, has experienced significant population growth, a key driver for the region’s development. From April 2020 to July 2022, the area welcomed over 22,000 new residents, marking a 5.9% increase. This growth is underpinned by the region’s affluence, with a median household income of around $79,000, ranking it among the wealthiest in Florida. Additionally, a significant portion of the population, one-third, is over 65 years old, contributing to a thriving healthcare industry. However, the area is not just a retirement hub; it has seen a notable increase in younger demographics as well, with the population aged 20-29 and 30-39 growing by over 9% and 4%, respectively, in the last five years.
Employment Trends and Sectoral Shifts
The influx of new residents has been a boon to Naples’ job market. By October 2021, the city had successfully recovered all jobs lost during the pandemic. However, compared to other markets in Southwest Florida, Naples has seen a slowdown in employment growth in recent months. As reported by Florida Jobs, around 1,400 jobs were added in Naples as of June 2023, with the education and health services sector leading the way, showing a year-over-year increase of 1,400 jobs. As of October 2023, the Naples area labor force increased by 1.3%, with a private sector employment growth of 200 jobs. On the flip side, some industries have faced setbacks, most notably the leisure and hospitality sector, which has experienced a loss of 1,000 jobs year-over-year, reflecting the region’s shifting economic landscape.
Closing Thoughts
Naples, Florida, is a dynamic blend of affluence, demographic diversity, and economic vitality, emerging as a significant growth hub in Southwest Florida. Its population surge, coupled with a high median household income, has created a robust environment for both retirees and a younger demographic. This balance has fueled a thriving healthcare industry and sustained economic resilience, especially evident in the city’s quick recovery from the pandemic’s impacts on employment, particularly in the health services sector.
As Naples continues to evolve, it seamlessly merges its traditional appeal as a retirement destination with modern advancements in healthcare and economic opportunities. The city’s ability to adapt and grow makes it an ideal location for those seeking quality living and investment opportunities. For specialized assistance in retail real estate investment in Naples, Lumicre offers expert guidance and insights, ensuring investors make informed decisions in this vibrant and prosperous region.