RetailResearch

M A R K E T
Miami-Dade County

O V E R V I E W
Second Quarter 2012

Retailer Expansions Revitalizing Miami

The Miami retail recovery will continue to outpace the nation as retailers ll dark space and developers remain slow to increase inventory. Necessity-based and discount retailers, which did well during the recession, are moving forward with expansion plans. Grocery stores such as Aldi, Publix, Whole Foods and Sav-A-Lot are among those recently adding stores in the county. Discounters such as Family Dollar and Walmart have also announced plans for new store locations. In addition, health clubs including U-Fit Health and Performance, which are well suited for the market, are lling up large blocks of vacated space. At the other end of the spectrum, foreign buyers who are purchasing condos in nearby downtown Miami are helping make the Design District, located between Biscayne Boulevard and N. Miami Avenue, the new luxury shopping destination in Miami. Hermes, Louis Vuitton, Christian Dior and Bulgari are expected to be added to the list of high-end retailers this year. Recent land purchases near downtown by retail developers are an indication that construction activity is likely to remain heightened in the years ahead. International investment activity will increase as foreign investors target Miami retail assets for safety plays. Ongoing worries in the eurozone are encouraging some investors to diversify portfolios to include overseas real estate. Due to the distant nature of these deals, triple-net assets with long lease terms in place are the preferred vehicle. Demand for these assets, however, outweighs the current supply of listings, placing upward pressure on prices. These single-tenant deals trade with average cap rates in the high5 to high-6 percent range, depending on the rent increases stipulated in the lease. Some hands-on local buyers are looking for multi-tenant listings that face some level of nancial distress. These assets trade with initial yields from the high-7 percent range, but can dip to near 7 percent in some cases. Operationally distressed assets, meanwhile, change hands between 9 and 10 percent.

2012 Annual Retail Forecast

2.7% increase in total employment

Employment: Employers in Miami-Dade are on track to add 27,000 positions this year, expanding total employment by 2.7 percent. Although job growth is broad-based, the government, construction, information and manufacturing sectors will continue to downsize in 2012. Last year, 27,800 jobs were added, a 2.8 percent bump. Construction: Approximately 240,000 square feet of retail space will be delivered in 2012, a 0.3 percent increase in inventory. Last year, developers completed nearly 192,000 square feet. The Miami/Miami Beach submarket has garnered the most building activity.

240,000 square feet will be completed

70 basis point decrease in vacancy

Vacancy: A rise in retail sales will push tenant demand above supply additions in 2012. This will lower the overall vacancy rate in Miami-Dade by 70 basis points to 6.2 percent, following a 90-basis point fall in 2011.

1.7% increase in asking rents

Rents: Stronger tenant demand will boost rents in the metro during 2012. Asking rents will rise 1.7 percent to $23.69 per square foot, while eective rents advance 2.2 percent to $20.10 per square foot. Last year, asking and eective rents increased 1.0 and 0.9 percent, respectively.

Economy

Employment Trends
Metro United States

Miami-Dade employers added approximately 23,200 workers year over year through the rst quarter of 2012, expanding total employment by 2.3 percent. A year ago, yearly job growth was 2.0 percent. Trade, transportation and utilities, and the leisure and hospitality employers added nearly 15,000 workers to payrolls over the past four quarters, due in part to expansion at the Port of Miami. Education and health services employers recorded sta increases of more than 9,000 employees during this time, osetting cuts in the government, nancial services, manufacturing and construction sectors. Job growth produced a rise in consumer spending, which led to a 7.5 percent increase in retail sales year over year in the rst quarter. Retail sales should continue upward as employers expand payrolls this year. Outlook: Employers in Miami-Dade are on track to create 27,000 positions this year, expanding total employment by 2.7 percent. Although job growth is broadbased, the government, construction and manufacturing sectors will continue to downsize in 2012.

6%
Year-Over-Year Change

3% 0% -3%

-6%

08

09

10

11

12*

Retail Completions
4
Square Feet Completed (millions)

Construction

Developers brought 103,000 square feet of retail space online during the rst three months of this year, bringing the year-over-year total to nearly 192,000 square feet. Nearly 907,000 square feet was added in the previous 12-month period. The 57,000-square foot Biscayne Corridor Retail Market was the largest project to be completed year to date, with Publix anchoring the center. In addition, 46,000 square feet of retail space near the Miami Marlins new baseball park was delivered. Building activity is likely to increase as developers have more than 3.4 million square feet of retail space in the planning pipeline. Over 2.6 million square feet of which is located in the Miami/Miami Beach submarket. Outlook: Approximately 240,000 square feet of retail space will be delivered in 2012, a 0.3 percent increase in inventory. Last year, developers completed nearly 192,000 square feet.

08

09

10

11

12*

Vacancy

Vacancy Rate Trends

Metro United States

12% 10%
Vacancy Rate

Although vacancy remained stable in the rst quarter of 2012 at 6.9 percent, it tightened 60 basis points year over year. Net absorption over the past 12 months of 640,000 square feet is down from almost 1.4 million square feet occupied one year earlier. Vacancy has fallen 130 basis points from a 20-year high of 8.2 percent reached in the rst quarter of 2010. Since then, more than 2 million square feet of retail space has been occupied. Store closings as well as inventory additions in neighborhood/community centers pushed vacancy up 60 basis points to a 20-year high of 7.7 percent year over year. Vacancy rose 10 basis points in the rst three months of 2012. Outlook: A rise in retail sales will push tenant demand above supply increases in 2012. This will lower the overall vacancy rate in the Miami-Dade metro by 70 basis points to 6.2 percent, following a 90-basis point fall in 2011.
Marcus & Millichap

8% 6%

4%

08

09

10

11

12*

* Forecast

page 2

Retail Research Report

Rents

Rents have increased for three consecutive quarters. The average asking rent rose 1.5 percent to $23.35 per square foot year over year in the rst quarter of 2012, up from a 0.8 percent drop in the preceding 12 months.
4%
Year-Over-Year Change

Rent Trends
Asking Rent Effective Rent

In the year-long period ending in the rst quarter, eective rents ticked up 1.4 percent to $19.70 per square foot. This follows a 1.1 percent decline in the prior 12-month period. Rising tenant demand has lifted rents in most Miami-Dade submarkets over the past year, with the largest increase in Miami/Miami Beach. Eective rents in this submarket jumped 1.8 percent year over year to $22.89 per square foot, the highest rate in the metro. Outlook: Stronger tenant demand will boost rents in the metro during 2012. Asking rents will rise 1.7 percent to $23.69 per square foot, while eective rents advance 2.2 percent to $20.10 per square foot. Last year, asking and eective rents increased 1.0 and 0.9 percent, respectively.

0% -4% -8% -12%

08

09

10

11

12*

Single-Tenant Sales Trends**

Median Price Per Square Foot

Single-tenant transaction velocity jumped 19 percent over the past 12 months ending in the rst quarter, after advancing 3 percent during the prior year. Out-ofstate and international investors remain active in the market. The median price of single-tenant buildings sold year over year through the rst quarter rose 9 percent to $326 per square foot, after a 28 percent jump in the previous four quarters. Increased demand may push prices higher in some instances. Cap rates for single-tenant assets have compressed into the high-5 to low-6 percent range for properties with good credit tenants and rent increases built into the lease. Meanwhile, leases with no rent raises garner cap rates in the mid- to high-6 percent range. Initial yields for non-credit tenant properties vary from the mid-7 to mid-9 percent range. Outlook: Improving operations and the availability of acquistion nancing will lead to a boost in velocity in 2012, hindered only by a lack of quality properties listed for sale. Activity will remain strong in the Miami/Miami Beach submarket.

Single-Tenant Sales Trends

$410

$335

$260

$185

$110

08

09

10

11

12**

Multi-Tenant Sales Trends**

Median Price Per Square Foot

Demand for multi-tenant properties remained stable, though light, over the past 12 months, after a 3 percent rise during the previous four quarters. Although deal ow has been minimal, improving operations should attract investor interest. Transactions nalized during the trailing 12 months traded at a median price of $225 per square foot, a 20 percent increase. In the prior year, the median price rose 3 percent. Properties in the city of Miami garnered the most attention. Cap rates for top-tier assets have compressed into the low-7 percent span, while Class B properties are in the mid- to high-7 percent range. Initial yields for lowertier assets remain unchanged in the mid-8 to mid-10 percent range. Outlook: Expanding access to capital and rising retail sales should attract buyer attention to multi-tenant assets in Miami-Dade this year. Strengthening operations should encourage more owners to list, while fewer available distressed properties could potentially boost prices.

Multi-Tenant Sales Trends

$240

$220

$200

$180

$160

08

09

10

11

12**

* Forecast ** Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics page 3

Marcus & Millichap

Retail Research Report

Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation

The yield on the 10-year Treasury hovers below 2 percent as political uncertainty in the eurozone has investors ocking to the safety of U.S. bonds. In response, lenders have pushed out loan spreads by approximately 250 basis points to 300 basis points, with CMBS lenders pushing wider. Mortgage originations were up 46 percent in the second half of 2011 when compared with the same period the previous year, driven by higher activity among commercial banks and life insurance companies. Funding for single-tenant assets with credit tenants will remain plentiful this year. All-in lending rates for drugstore assets currently fall in the high-4 to mid-5 percent range, while loans for fast-food and restaurant properties price 50 to 100 basis points higher. In the multi-tenant sector, lenders are loosening criteria on anchored Class B centers and Class A strip centers. Deals under $10 million will be dominated by local and regional banks, which offer three- to seven-year, xed-rate recourse loans. In the $10 million to $20 million range, CMBS lenders and nance companies step into the picture, while deals over $20 million typically have access to a full spectrum of sources. On average, debt yields will hover in the 9.5 to 10.5 percent range, translating into LTVs of 65 percent to as high as 75 percent.

Visit www.NationalRetailGroup.com or call: Bill Rose National Director National Retail Group Tel: (858) 373-3100 bill.rose@marcusmillichap.com

Submarket Overview

Retail operations in the South Dade County submarket posted signicant improvements year over year. Vacancy fell 140 basis points to 5.4 percent, the lowest rate in the metro, allowing operators to boost rents. Asking rents jumped 2.1 percent in the past 12 months to $18.13 per square foot, the most aordable rents in the county. The Opa-Locka/Norland/Hialeah submarket was the only area where eective rents contracted during the past 12 months, as operators opted to expand concessions in an eort to improve occupancy. The Miami/Miami Beach submarket is receiving the most attention from developers, as there is nearly 80,000 square feet due for completion this year and more than 2.6 million square feet of retail is planned. Even though the submarket has the highest vacancy, operators can still command the highest rents.

Prepared and edited by

Nancy Olmsted
Research Associate Research Services For information on national retail trends, contact

John Chang
Vice President, Research Services Tel: (602) 687-6700 john.chang@marcusmillichap.com Miami Oce:

Kirk A. Felici
Regional Manager kfelici@marcusmillichap.com 5201 Blue Lagoon Drive Suite 100 Miami, Florida 33126 Tel: (786) 522-7000 Fax: (786) 522-7010

Submarket Vacancy Ranking

Rank
1 2 3 4 5

Submarket
South Dade Opa-Locka/Norland/Hialeah West Dade Coral Gables/Kendall/Richmond Miami/Miami Beach

Vacancy Rate
5.4% 5.7% 5.7% 6.8% 9.5%

Y-O-Y Basis Point Change

-140 -140 0 0 -130

Effective Rents
$14.94 $17.12 $17.82 $21.60 $22.89

Y-O-Y % Change
2.4% -0.4% 1.0% 1.7% 1.8%

Price: $150

Marcus & Millichap 2012 www.MarcusMillichap.com

The information contained in this report was obtained from sources deemed to be reliable. Every eort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $500,000 and greater unless otherwise noted. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, National Association of Realtors, Real Capital Analytics, Reis, TWR/Dodge Pipeline, U.S. Census Bureau.