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Retail property fundamentals continue to soften in response to the changing state of the local economy. In South Florida, the softening of these demand generators has had the most effect on Broward County. The slower rate of retail spending has diminished space demand and forced some tenants to close locations. As a result, the vacancy rate for retail properties in Broward County has climbed 90 basis points so far this year, and additional increases are expected.

Effective rents have declined 0.3% thus far in 2008 and are forecast to recede throughout the rest of the year. As owners attempt to stem occupancy losses, concessions rose to 11.5% of asking rents in the second quarter of 2008, up from 9.8% one year ago. In Western Broward County, shopping center concessions have climbed 170 basis points in the past year to 11.7% of asking rents.

Despite the unsettled housing market, retail properties in Miami-Dade County continue to perform well, although vacancy has risen 40 basis points to 5.6% in the second quarter. Leasing velocity remains healthy, although absorption has started to slow in recent months.

Much of the recent leasing activity represents tenant renewals and not expansions. Pockets of weakness can be observed in older, unanchored strips in the county where local retailers have vacated as a result of declining sales. Additionally, fundamentals have softened at properties in the western and southern sections of the county, where a sluggish single-family housing market has reduced consumer traffic. In response, concessions have increased in these submarkets. Over the 12-month period ending in the second quarter, concessions in West and South Dade rose 100 basis points to 11.8% of asking rents.

As housing prices become affordable again, population growth will resume, and the performance of retail assets will improve. In the near term, buyers and sellers will remain concerned about the effects of higher property taxes and insurance premiums on asset performance.

The views expressed here are those of the author and not of Real Estate Media or its publications.

Richard Matricaria is a vice president investments in the Fort Lauderdale office of Marcus & Millichap Real Estate Investment Services. He can be reached at [email protected]

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