At the end of the fourth quarter 2016, the overall vacancy level in the Southwest Florida retail market was 5.7 percent, relatively unchanged from third quarter 2016. Almost 1.3 million square feet was absorbed over the 2016 year, with well over 100,000 square feet of space in the final quarter. New construction has increased, with 140,000 square feet delivered and over 400,000 square feet under construction at year-end. Absorption exceeded new supply by almost 460,000 square feet in 2016.
Overall, the quoted rental rates have increased slightly. Average asking rates of $17-per-square-foot for Lee County and almost $28-per-square-foot in Collier County. Charlotte County’s average asking rate was $10-per-square-foot. Rental rates are expected to increase in the near term, largely due to increased demand, coupled with low levels of new construction.
With the unemployment numbers falling and the amount of disposable income raising, expectations for the retail real estate market in 2017 are positive. News of store closings will likely continue for struggling retailers as well as brick-and-mortar retailers who are contending with growing ecommerce sector. One segment of the retail real estate market that has stayed strong is the net-lease investment market. Pricing of net-lease investment properties have been at all-time highs for the past two to three years. The forecast of rising interest rates has had an impact on the net lease market, with overall average capitalization rates rising from the third quarter to the fourth quarter of 2016. It will be important to monitor the yield on the 10-year Treasury note. The cap rates for single-tenant net-leased investment properties generally track at a certain spread over the 10-year Treasury yield.
The following table summarizes information on recent sales on net leased retail properties in Florida:
As indicated by the table above, net leased investment sales have had cap rates ranging from a low of 4.00 percent for ground leases to a high of 7.25 percent, with a weighted average capitalization rate of 5.66 percent. The lowest cap rates, and the highest values per square foot, are largely associated with those sales occupied by investment grade tenants, with lease terms of 10 years or more.
In summary, the demand for retail space next year is projected to be very strong, with continued strong demand from individual investors for net-leased investment properties.
Please contact me to discuss your investment needs and what is available in the market now.