This Florida City Leads Nation in Retail Rent Growth As Ohio Surprises

Article originally posted on CoStar on June 26, 2023

Boosted by the significant uptick in consumption resulting from strong population and employment growth, many major markets in the Sun Belt continue to see retail rents accelerating at a rapid pace, in many instances by more than twice the national average.

Average triple-net asking rents for retail space across the U.S. have increased by 3.6% over the past year, down slightly from the recent peak of 4.3% hit in mid-2022, but still well above the historic average of 1.4%. However, there is a significant bifurcation in performance under the surface, as numerous markets have seen rents increase at a much brisker pace.

Markets that are recording rapid rent appreciation have generally benefitted from significant population and employment gains that have boosted consumption and increased the need for retail goods and services.

This increase in demand has driven a significant decline in available retail space in these markets while simultaneously boosting the sales efficiency of occupied space, thereby giving landlords the leverage to push rents while keeping occupancy costs for tenants from spiking.

Of the top 10 markets for retail rent growth over the past year, eight are in the Sun Belt region, including three markets in Florida. Fort Lauderdale, with an average annual retail rent growth of 9.8%, leads the country in rent growth over the past year, while both Orlando and Tampa also made the top 10.

“The brisk pace of in-migration to Florida and strong consumer spending in the Sunshine State has fueled an uptick in interest from out-of-state retail and restaurant concepts, many of whom are either seeking expansion opportunities or an entry into the market,” said Lisa McNatt, CoStar’s director of market analytics in Florida.

She added that “many consider Florida a strong market in part due to the tourist feedback they receive as well, with visitors shopping and dining and taking those impressions home with them.”

The state’s business-friendly policies and a reduction in the sales tax rate on commercial real estate property lease payments from 5.5% to 4.5%, for occupancy beginning on or after Dec. 1, is also driving leasing interest in key metropolitan areas, she said.

Outside the Sun Belt region, markets in Ohio have been surprising outperformers, with Cleveland and Cincinnati being the other two markets rounding out the top 10 over the past year.

Elizabeth Ptacek, CoStar’s senior director of market analytics in Ohio, said the recent retail rent growth can be attributed to a combination of a lack of available space, demographic trends, and the region’s affordable cost of living.