Guess where the top RETAIL is happening in commercial real estate? Florida!
The five hottest retail commercial real estate markets in the U.S. share one characteristic – they are in the two most southern states of the continental U.S.
They also share other characteristics.
They are seeing gains in retail that surpass national averages, driven by population growth, housing metrics and overall stronger economies, said Peter Muoio, chief economist at Ten-X, a leading online real estate marketplace.
Florida’s housing market has improved and the labor market is strong.
Three of the top five “buy markets” in the retail sector are in Florida and two are in Texas. All five are characterized by low vacancies and strong demographics, according to Ten-X’s latest quarterly report on commercial real estate.
Online shopping challenges all markets
Online shopping is the biggest challenge facing the retail sector of commercial real estate these days, Muoio said.
According to Ten-X’s most recent quarterly economic and real estate update, e-retail continues to rise and now accounts for 13.6 percent of total retail sales, up 0.9 percent from a year ago.
There are positives for the real estate sector, however. An improving labor market and wage growth are fueling demand, and because there’s such little supply being developed anywhere in the U.S., that demand is driving vacancies down, according to Muoio.
Here’s a closer look at those top-Florida markets, as well as a few outliers in the bottom five – markets that seem to be situated well geographically, but are not performing well in the retail sector.
Miami, Fort Lauderdale, Tampa
Florida was hit particularly hard by the country’s housing bust that spanned from 2006 through 2012. The flow of people moving to the state from the Northeast and Midwest slowed considerably.
“(People) couldn’t sell their homes, there were no jobs, (a move) didn’t look attractive because economies weren’t robust, etc., so population growth slowed, which of course is not a good thing for retail,” Muoio said.
Since the bust, though, Florida’s housing market has improved, the labor market is strong and the flow of people moving from the Northeast and Midwest to what Muoio calls “post-housing bust markets” (Southeast, Southwest, most of the West) has picked up again.
In addition to population growth leading to greater demand, retail supply is limited because there wasn’t much development when the economy was sagging.
“Their economies are now much stronger, but their real estate markets generally are quieter or earlier in the development process, so they don’t have as much supply risk as some of the other parts of the country,” Muoio said.
“The combination of a much stronger demographic backdrop and less supply risk is one of the reasons why these three Florida markets rose to the top,” he added. “The combination of all these things are on the right place on the charts of both demand and supply.”