South Florida is seeing a slowdown in retail leasing activity, as available space becomes more scarce in the region.
The news comes from Matthews Real Estate Investment Services' third-quarter market report, which analyzed the performances of Miami, Palm Beach, and Fort Lauderdale.
Most notably, leasing is down significantly in Miami and Palm Beach, with 2.5 million and 1.6 million square feet worth of deals done in the year-to-date through September. That's down from the 2021 peak levels of 3.5 million and 2.6 million square feet, respectively. Fort Lauderdale completed 2.5 million square feet of leases, down from the peak of 3.3 million. Lack of availability weighed on the leasing for all three regions, according to Matthews.
Both Fort Lauderdale and Palm Beach experienced negative absorption levels, at -333,000, and -269,000 square feet, respectively. Meanwhile, Miami positively absorbed 827,000 square feet.
Despite those categories, the three regions still produced encouraging trends — particularly with rents. While retail sales growth has slowed down a bit as of late due to high inflation, the category, and limited availability are both driving "substantial rent growth" in Miami, according to Matthews. In the last 12 months, rents have increased by 3.7 percent, and 17 percent in the last three years. The national average growth over the past few years is about 10 percent. Palm Beach saw the highest growth rate among the South Florida regions in the report over the past year, at 5.7 percent. Fort Lauderdale's inched up by 2.5 percent.
While rents were impressive in Miami, Matthews expects the rate to "stall" due to softening demand.
"Despite this, the market’s growing desirability and limited amount of accessible space should result in prices above the national average," the brokerage firm wrote.
Fort Lauderdale at the end of September saw the highest vacancy rate out of all the South Florida regions on the report, at 3.7 percent.
Matthews expects the levels to "remain tight," through next year — with upticks in submarkets.
"The Southwest Broward and Hallandale submarkets, that make up more than half of all under-construction activity, are likely to have vacancy rates grow modestly by less than 1% overall through 2025," Matthews said.
For Palm Beach, Matthews sees available space remaining "tight" and under the national average for the next 3-4 years. That combined with high interest rates and the economy slowing down could lead to lead to weaker retail transactions going forward.
"Higher cap rates, combined with declining fundamentals, will continue to stifle market activity until financial circumstances improve, at which point it will likely resume," Matthews wrote.