The outbreak of COVID-19 has had an outsized impact on South Florida. According to John Hopkins University & Medicine, the region’s three primary counties rank in the top 20 of confirmed COVID-19 cases as of Wednesday, July 22. At 92,345 cases, Miami-Dade County is No. 4 on the list. Broward County comes in at No. 9 with 43,747 cases, and Palm Beach County is No. 20 with 27,506 cases.
The surge in cases has had a pronounced effect on the area’s retailers as citizens have resumed their caution in public settings for fear of contracting the virus.
“There is a tremendous amount of distress across South Florida’s economy, and especially in retail,” said Philip Rosen, shareholder and real estate chair of law firm Becker.
Rosen’s comments came during South Florida Retail Outlook, a webinar hosted by Shopping Center Business that discussed the impact of COVID-19 on South Florida’s retail sector. Rosen moderated the panel discussion, which had 337 registrants.
The pandemic’s effect is not all negative as grocers, drugstores and hardware stores have enjoyed increased sales activity amid the crisis. However, the bulk of retail categories are suffering from extended closures and operating at limited capacities.
Restaurants in particular are the most affected category as most in Florida are operating at 50 percent maximum capacity, according to panelist Duane Stiller, founder and president of Woolbright Development. As a landlord, Stiller said that the most important thing for all owners to understand is that working with their struggling retailers is paramount to everyone’s success.
“It’s a really tough time for retailers; their revenues are way down,” said Stiller. “Landlords just have to work with them. We got a call the other day from Regal Cinemas. It was kicking back the opening another two weeks only to find that the movie it was waiting for still isn’t ready. It’s really been quite tragic.”
Prepare for rent struggles
The panel agreed that it’s safe to say that South Florida, as well as the nation overall, is back to the first inning in the proverbial analogy of the recovery-expansion cycle of the economy. Lyle Stern, president of retail leasing and consulting firm Koniver Stern Group, surmised that once COVID-19 subsides and South Florida retailers are allowed to open and operate at maximum capacity, it’s impossible to predict what that will look like on a practical level.
“We may get back to some degree of normal, but it’s not going to be the same,” said Stern. “That will affect rent structures.”
The audience of the webinar agreed with Stern via a poll question about how rents will move going forward. Approximately 77 percent of respondents predicted rents are going to decrease, 22 percent said they’d remain stable and 1 percent said they’ll increase.
Stiller said that the South Florida retail market experienced a 20 percent dip in rents during the Great Recession, and that could be a reasonable expectation for rents during the next recovery. According to research from Colliers International, asking rents are already shifting noticeably. Average rents in Miami-Dade County dropped nearly $2 in second-quarter 2020 ($35.98 per square foot) from the previous quarter ($37.95 per square foot).
Rod Castan, president of the leasing and management division at Courtelis Co., said that rent is a variable that all owners can work with their tenants to figure it out — but keeping their tenants in place is key.
“You want to keep a retail center vibrant and you want to keep the occupancy up, so we make short-term concessions in order to keep these tenants going,” said Castan. “Rents are only a function of sales. For the tenants that we really believe in, we’re extending terms or restructuring their deals. It’s an opportunity in some cases to rightsize tenants or amend leases where we need to.”
Long-term outlook shifts
Adam Tiktin, president of Tiktin Real Estate Investment Services, predicted that the short-term pain caused by the COVID-19 pandemic will ultimately reshape how retail centers throughout South Florida will look and feel.
“There’s going to be a very big shift in population, and there’s going to be a shift in demand. And because of that, it’s going to have a big impact on not just the properties, but the buildings and then the space itself,” said Tiktin. “What people are doing with that space is changing very fast right now because of what’s happening.”
As retailers and their landlords are figuring out best practices to operate safely and successfully, the panelists agreed that the network of retail professionals in South Florida has the best chance of any group to come out the other side of the pandemic.
“We have a very resilient and diverse base here in South Florida,” said Castan. “It is the one of the most entrepreneurial areas of the country, and that’s what makes it exciting to develop, lease and manage here.” Click here to register and view the complimentary webinar in its entirety.