Page Contents
Overview
- Rapid Growth and Expansion: Tampa’s retail market has seen significant growth, fueled by rapid population increases and the arrival of new brands, alongside the expansion of existing ones.
- High Space Absorption: The market dynamics have led to swift space absorption and a robustly leased development pipeline, showcasing the high demand for retail space.
- Foundation of Resilience: Despite potential economic downturns, the solid foundation of Tampa’s retail sector suggests resilience and continued growth potential.
- Consistent Retail Demand: The market has experienced remarkable consistency in demand, with 11 consecutive quarters of positive net absorption, highlighting sustained interest and activity.
- Net Absorption Surpassing New Deliveries: Tampa witnessed 1.0 million square feet of net absorption over the past year, outpacing the 900,000 square feet of new deliveries and indicating a supply-demand imbalance.
- Decade-Low Vacancy Rate: This imbalance has reduced the vacancy rate to a decade-low of 3.2%, underscoring the tight market conditions.
- Diverse Leasing Demand: Leasing demand is primarily driven by furniture, home goods, discount department stores, and fitness centers for larger spaces, while food and beverage outlets dominate smaller, inline retail spaces.
Evolving Dynamics in Leasing
Sustained Growth in Tampa’s Retail Market
Tampa’s retail market has demonstrated remarkable resilience and growth, evidenced by 11 consecutive quarters of positive absorption. This region stands out in Florida for its trailing 12-month net absorption, reaching an impressive 1.0 million square feet. Such consistent demand from tenants has pushed Tampa’s vacancy rate to a near-historic low of 3.2% as of the third quarter of 2023.
Challenges Due to Limited Availability
The continuous decline in vacancy over nine quarters has led to a significant challenge in the Tampa retail market: a scarcity of available space impacting leasing activity. In the first half of 2023, tenants leased around 1.5 million square feet of retail space, a decrease from the 2.2 million square feet leased in the same period in 2022. The limited availability of space is a significant constraint, with 80% of the upcoming 820,000 square feet pipeline already accounted for. Additionally, the scarcity of high-quality 4 & 5 Star big-box retail spaces is notable, with only about ten such spaces over 20,000 square feet available in the Tampa area and a mere three in Hillsborough County, the region’s largest population center.
Emerging Trends and Significant Leases
Discount retailers like Five Below, pOpshelf, and Dollar General have been actively leasing space in Tampa, with over 40,000 square feet in new commitments to date this year. The food and beverage sector, gyms, and apparel stores are also showing significant activity in 2023. Notable leases include Life Time Athletic at 40,636 square feet and Crunch Fitness
at 30,537 square feet. Additionally, Target’s recent land purchase in Pasco County for a new 150,000-square-foot store highlights the ongoing expansion and investment in the region’s retail landscape.
Understanding Current Rent Dynamics
Tampa’s Retail Rent Growth Among Top US Markets
Tampa’s retail sector has shown impressive performance in rent growth, ranking it within the top five markets in the United States. As of the third quarter of 2023, the year-over-year increase in asking rent was 7.8%. However, this growth peaked in the first quarter of 2023 and has been on a decelerating trend since. The daily asking rent per square foot offers insights into this slowdown. Since the second quarter of 2023, there has been a noticeable stagnation, with increases of less than $0.50 over a three-month period. This deceleration is expected to continue in the upcoming quarters, largely due to a projected pullback in consumer spending and a looming recession. Despite these challenges, experts predict that Tampa’s retail rent growth will continue to surpass the national average for the foreseeable future.
Diverse Rent Growth Across Tampa’s Submarkets
In Tampa, most submarkets have seen year-over-year rent growth ranging between 6% and 9% over the past year. Westshore, especially near the upscale International Plaza Mall, along with the urban cores of Downtown Tampa and Downtown St. Petersburg, command the highest average rents. Petersburg, where asking rents exceed $30 per square foot. South Tampa has experienced the fastest rent growth, approximately 9% year over year. In contrast, the Pasco County Submarket, with one of the lowest overall average rents in the Tampa metropolitan area, has seen a surge in both commercial real estate development and demand, especially along State Road 54. This differential in rent levels across various submarkets highlights the diverse and dynamic nature of Tampa’s retail real estate landscape.
Future of Construction Development
Limited Large-Scale Retail Development Despite Strong Market Fundamentals
Tampa’s retail market, while boasting some of the most robust fundamentals in Florida, is witnessing minimal large-scale retail development. Currently, approximately 900,000 square feet of retail space is under construction, which will increase the market’s inventory by only 0.5%, aligning with the national average. This development pipeline, however, needs to meet the existing demand from retailers, with 80% of the space already pre-leased. This scenario underscores a significant gap between the demand for retail space and the availability of new developments in the Tampa area.
Shift of Retail Construction to Pasco County
In response to the need for large-scale retail development in Tampa proper, the focus has shifted northward to Pasco County. This area has seen a notable increase in retail inventory, with more than 2 million square feet added in the past five years. Currently, around 390,000 square feet is under construction in Pasco County. The trend in this region leans towards medium-sized retail projects, predominantly in the range of 25,000 to 45,000 square feet. These developments include free-standing retail properties for notable names like EoS Fitness, Whole Foods, and Sprouts. This shift to Pasco County is driven by the availability of land and significant population growth, indicating a strategic redirection of retail development to cater to emerging market demands.
Understanding Current Sales Dynamics
Tampa’s Retail Investment Landscape Amid Economic Uncertainty
Tampa continues to be a focal point for retail investors in Florida, with the region achieving $1.5 billion in investment volume over the past year. Although investment volumes in the market exceeded $1.8 billion in both 2021 and 2022, current economic uncertainties and fluctuating interest rates are likely to impact retail investment sales for the remainder of 2023. This trend is evident from the fact that less than $100 million was traded in the second quarter of 2023 (23Q2), marking it as the weakest quarter for retail investment sales volume in the past decade.
Significant Mall Sale and Market Dynamics
The Tampa market recently witnessed a notable transaction: the sale of the Brandon Mall by South Florida-based North American Development Group for $220 million, or $295 per square foot, which is significantly higher than the average market price per square foot. This sale, involving an 85% occupied mall, stands out as the most substantial mall sale in Florida in the last five years. The previous owner, Paris-based Unibail-Rodamco-Westfield, had announced plans to exit the U.S. markets in August 2022. The deal also included additional land entitled for 180,000 square feet of development, highlighting the strategic value of this transaction.
Trends in Retail Sales and Investor Profiles
Over the past year, most retail sales in Tampa have been under $10 million, with institutional capital largely remaining on the sidelines. Private investors, however, have been more active, representing over 75% of the buyer pool in the trailing 12-month period. One significant sale in this category was to a private investor, Maryland-based Marc Cohen, who purchased a newly built Tesla sales and service center in March 2023 for $26 million, or $262 per square foot, at a 6% cap rate. This rate was approximately 30 basis points below the market average at that time, indicating a keen interest and competitive pricing in Tampa’s retail investment market.
Final Thoughts: Seizing Opportunities in Tampa’s Retail Sector
In summary, despite the challenges posed by economic fluctuations and interest rate changes, Tampa’s retail market remains a fertile ground for astute investors. The shifting dynamics of this market, highlighted by noteworthy transactions and changes in investor behavior, emphasize the opportunities for strategic investment in the area. Navigating this intricate and ever-changing environment requires expert advice and in-depth knowledge. At Lumicre, we are committed to offering extensive support and valuable insights tailored to your investment objectives. If you are contemplating a foray into the Tampa market or seeking to enhance your existing investment strategies, reach out to Lumicre. Our team is ready to assist you in making well-informed and lucrative investment choices in the realm of retail.