The Sarasota retail market, the largest in Southwest Florida, encompasses over 53 million square feet of retail space. Recently, the market has demonstrated robust demand, absorbing approximately 630,000 square feet in the past year. This surge in demand has led to a significant decrease in vacancy rates, which now stand at a near-historic low of 3.8% as of the third quarter of 2023. Notably, certain types of retail spaces, like power and strip centers, are experiencing extremely low vacancy rates below 1.5%. However, the market does have its challenges, particularly with older malls such as the Sarasota Square Mall, which has been struggling with high vacancy rates since 2019 and is currently 70% vacant.
In terms of rental costs, Sarasota’s retail space remains relatively affordable compared to other nearby markets like Tampa and Naples, with current asking rents averaging around $23.00 per square foot. This rate has seen a recent increase of 4.7% over the last 12 months, outpacing the national average increase of 3.5%. Despite these rising costs, Sarasota’s retail rents are still competitive, especially when juxtaposed with the higher rates in neighboring regions.
The Sarasota retail market has seen significant construction and development activity, delivering 600,000 square feet of new retail space in the past year, including notable projects like Benderson’s Creekside Commons. While new retail starts have recently decelerated, with about 100,000 square feet breaking ground this year, ongoing projects, including the expansive Quay Sarasota mixed-use development, are set to further enrich the downtown area by 2025. This development vigor is matched by strong investment activity, with over $140 million in sales volume in Q2 of 2023 and a total of around $422 million traded over the past year.
Page Contents
- Strong Retail Demand and Absorption
- Future Outlook: Positive Demand with Controlled Vacancy Rates
- Record High Retail Asking Rents in Sarasota
- Premium Lease Rates in Prime Locations
- Future Outlook: Deceleration in Rent Growth
- Significant Construction Activity Boosting Sarasota’s Retail Market
- Build-to-Suit Developments Characterize Current Retail Expansion
- Limited Impact on Vacancy Rates from New Constructions
Strong Retail Demand and Absorption
Over the past year, the Sarasota retail market has experienced robust demand, marked by approximately 630,000 square feet of absorption. This strong demand has significantly outpaced new market deliveries, which added about 600,000 square feet of retail space. A noteworthy aspect of this market trend is the declining vacancy rate, which has dropped by 0.1% since last year, reaching a near-historic low of 3.8% as
of the third quarter of 2023. This vacancy rate decrease underscores Sarasota’s retail sector’s growing strength and appeal.
Impact of Limited Availability on Leasing Activities
The first half of 2023 witnessed a slowdown in leasing activities, primarily due to dwindling availabilities in the retail space. The limited availability of larger retail spaces has been particularly evident, with less than five tenants leasing spaces over 10,000 square feet. Notable leases included Burlington occupying 60,000 square feet, Hotbins taking up 10,800 square feet, and an outdoor furniture company leasing 10,000 square feet. This trend reflects a tightening market where larger retail spaces are becoming increasingly scarce, impacting the dynamics of leasing activities.
Future Outlook: Positive Demand with Controlled Vacancy Rates
Looking forward, CoStar projects that demand in the Sarasota retail market will continue to be positive, albeit at a slower rate compared to the exceptional growth witnessed in 2022. This sustained demand, coupled with a limited supply of speculative construction deliveries, is expected to maintain the market’s vacancy rate below 4.5% for the foreseeable future. This forecast suggests a stable and healthy retail market environment in Sarasota, with a balanced interplay between demand and supply.
Record High Retail Asking Rents in Sarasota
As of the third quarter of 2023, Sarasota’s retail market has seen a significant uptick in asking rents, recording a 4.7% year-over-year increase to an unprecedented $23.00 per square foot. This rate of growth has consistently outpaced the national average since early 2020. A key factor in this rise is the ability of landlords in prime retail locations to command much higher lease rates than the average. A notable instance of this trend was in July 2023, when the restaurant Eatalia secured a lease for 1,536 square feet at a rate of $35 per square foot in the upscale Waterside Place in Lakewood Ranch.
Premium Lease Rates in Prime Locations
The disparity in lease rates is particularly evident in high-demand areas. Premier retail locations in Sarasota are achieving lease rates significantly above the market average, exemplifying the strength and desirability of these areas. The leasing of Eatalia in Waterside Place, Lakewood Ranch, at $35 per square foot, stands as a testament to the premium value placed on top-tier retail spaces in strategic locations. This trend highlights the importance of location in the Sarasota retail market, where prime spots command a premium.
Future Outlook: Deceleration in Rent Growth
Looking ahead, experts expect the trajectory of asking rent growth in Sarasota’s retail market to slow down in the coming quarters. A projected pullback in consumer
spending, likely preceding a potential recession in the next year or so, is driving the anticipated deceleration in rent growth. This forecast suggests a cautious approach for both landlords and tenants in the retail sector as the market adjusts to broader economic changes and consumer behavior patterns. This phase might see a balancing of rental prices, aligning more closely with the broader market and economic conditions.
Significant Construction Activity Boosting Sarasota’s Retail Market
In the past year, Sarasota’s retail market has been significantly bolstered by construction activities, with over 600,000 square feet of new retail space delivered. Benderson Development’s Creekside Commons, encompassing 200,000 square feet along U.S. Highway 301, is a major contributor to this development surge. This development, the largest in the past year, is notably anchored by prominent retailers HomeGoods and Pet Supplies Plus. Another key addition to the market is the Shoppes at Palmer Ranch, a 57,000-square-foot retail center anchored by Publix. These developments underscore the dynamic nature of Sarasota’s retail landscape, driven by substantial construction activity.
Build-to-Suit Developments Characterize Current Retail Expansion
A notable trend in the current retail expansion in Sarasota is the prevalence of build-to-suit developments tailored for specific tenants. This approach aligns with the needs of major retailers, providing customized spaces that fit their particular requirements. The ongoing construction projects illustrate this trend, with a significant portion of the 400,000 square feet currently under construction dedicated to custom developments. This strategy not only meets the specific needs of anchor tenants but also adds a unique dimension to the retail market, enhancing its appeal and diversity.
Limited Impact on Vacancy Rates from New Constructions
Despite the significant amount of retail space under construction, only about 20% of this space remains available for lease. This limited availability indicates a pre-leasing solid activity. The new additions to the retail market are likely to have only a minimal impact on the overall vacancy rate in the near term. The solid pre-leasing performance reflects the healthy demand in Sarasota’s retail sector. It points to a market that is effectively absorbing new developments without significant disruptions to the existing vacancy dynamics. This trend reinforces the strength and resilience of the Sarasota retail market, even as it continues to expand and evolve.
As we conclude our analysis of the Sarasota retail market, it’s evident that this region remains a vibrant and dynamic arena for retail real estate investment. The combination of robust construction activity, strategic leasing trends, and sustained demand underscores Sarasota’s position as a leading market in Southwest Florida. Despite fluctuations in investment levels compared to the historic highs of 2021 and 2022, the market demonstrates resilience and adaptability, with private buyers playing a significant role in shaping its landscape. The retail sector in Sarasota, characterized by strong absorption rates, rising asking rents, and selective yet impactful construction developments, continues to offer promising opportunities for investors looking to capitalize on its growth and stability.
In summary, Sarasota’s retail market presents a compelling narrative of growth, opportunity, and strategic investment. The market’s ability to maintain low vacancy rates amidst active construction, coupled with its attractive rental rates and the significant presence of private investors, positions it as an attractive option for those looking to invest in commercial real estate. For further insights and expertise in navigating the intricacies of this dynamic market, we encourage you to contact Lumicre for all your commercial real estate needs. At Lumicre, our team actively provides tailored solutions and strategic guidance to maximize your investment in Sarasota’s flourishing retail landscape.