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Central Florida Retail Outperforms National Trends

CoStar Market Insights: High Household Formation, Job Growth and Tourism Help Fuel Elevated Demand, Rent Growth and Sales Volume
July 31, 2018

Spurred by highly publicized store closings of national chains like Toys R Us and Sears, the retail sector has received a lot of attention and analysis regarding its impending "apocalypse." A quick look at central Florida’s market fundamentals, however, wouldn’t support such gloom and doom.

In Tampa and Orlando, demand has greatly outstripped new supply since 2014, driving the vacancy rates in both markets down to levels not seen in at least a decade. Tampa’s current total retail vacancy rate is only 50 basis points above the lowest market ever recorded by CoStar Research, while Orlando established a new historical trough in the third quarter of 2018.

The markedly tightened fundamentals have allowed landlords to aggressively push rents, with both Tampa and Orlando ranking among the highest national markets for year-over-year rental growth.

Tampa has maintained its placing among the top-20 rent growth markets for eight consecutive quarters. Similarly, Orlando only appeared on the top 20 list for four consecutive quarters, but it has held a lofty position and finished in the top three nationally each time.

Investment activity has also been booming of late, though sales volume has still not returned to frothy levels seen just prior to the Great Recession. In Tampa and Orlando, annual sales volumes at mid-year 2018 were up approximately 12 percent and 20 percent, respectively, compared to the same point last year. This is particularly notable when compared against national average retail sales volume, which was down over 12 percent from 2017.

Central Florida has maintained job and population growth rates well above the national average for much of the past decade and has also led all Florida metropolitan areas since 2013 in total household formation. Over recent quarters, both Tampa and Orlando have seen increasing wage growth, which, while still low compared against historical trends, has outperformed national wage increases.

The expanding population and increased wages contribute to increased consumer spending, a key driver of retail demand. Additionally, both Tampa and Orlando’s retail markets benefit from a robust tourism industry, with record-setting visitor counts and bed tax revenues over recent years helping fuel demand.

There are macroeconomic factors that could rain on central Florida’s parade, such as a prolonged trade wars or immigration restrictions -- either of which could greatly impact both Tampa and Orlando due to their proportionally-higher exposure to international capital and immigration than most U.S. markets.

The foreseeable horizon for retail demand, however, appears bright, as future job and population growth rates are expected to outpace the nation. Additionally, tourism has shown no sign of slowing in either area. In 2018, Hillsborough County in Tampa became only the ninth county in Florida to receive the "high-impact tourism" county designation and Orlando should benefit from an ongoing amusement parks "arms race" that will include new draws Toy Story Land and Star Wars Land.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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