The Changing Market for Retail Space

"Available for Lease" may best describe the current retail real estate market after several years of expansion, intense competition and repositioning to keep up with new and shifting growth patterns.

While more than 800,000 square feet of mid- to big-box vacant retail space in Lee County provides some unique opportunities for redevelopment and "non-traditional" tenants, it's also a sure sign that the frenzied pace of expansion during the last several years won't continue. Instead, look for a period of slower expansion to allow for absorption of existing space.

Some new entrants into the market also give us a read on what's important to today's Southwest Florida consumer: convenience and mobility.

Changing Demographics

To say that Lee County has experienced explosive growth during the last 15 years would almost be an understatement.

In 1980, the county population was 205,000. Today, it is more than 394,000, an increase of 92 percent. With projections for strong growth in the near future, some industries are investing heavily in certain areas to ensure future market share and, hopefully, keep out competitors.

One such industry is grocery stores, which currently are engaged in a war of buying up market share in areas that are fast growing but not yet mature.

In 1997, we saw construction of 11 new grocer-anchored retail centers (five Winn Dixie's, three Albertson's, two Publix's and one Kash n' Karry), mostly between Fort Myers and Bonita Springs.

This trend, however, will not continue at this pace as most of the market now is locked up.

The changing demographics includes new residents and existing residents who are getting up and moving around, so to speak, to newer homes and preferred communities.

This causes shifts in population centers and changes traffic patterns. In addition, some larger retailers found limited growth potential at existing retail centers due to their inability to expand.

These factors led to some of the shifts we saw in 1997. Most notably, Home Depot moved from its location in Cypress Trace Shopping Center to a stand-alone facility further south at U.S. 41 and Six Mile Cypress Parkway.

This followed a trend Wal-Mart began in 1996 when it moved two of its retail center anchor stores to freestanding facilities. One moved from Cypress Lake Shopping Center to U.S. 41 and Six Mile Cypress. The other moved from Hancock Bridge Square to U.S. 41 and Pine Island Road. We also saw Robb & Stucky move from the Colonial Boulevard corridor to locations further south.

Other retailers like Levitz, Scotty's, Sears' Home Life and Kash n' Karry found the competition too much and either partly or entirely pulled out of the market.

What has emerged is an abundance of what's known in the real estate business as dark space -- vacant retail space that often is in retail centers still occupied by smaller tenants that relied on the traffic generated by the now-missing big-name retailers.

In fact, by the end of 1998, there will be almost one million square feet of mid- to big-box vacant retail space in Lee County.

While I believe you'll begin to see some dark centers -- especially the infill locations at main intersections (i.e., Cypress Lake Drive and U.S. 41) -- being redeveloped, subdivided into smaller spaces and undergoing dramatic facelifts, many centers will continue to hold out the hope of attracting another big anchor tenant after one has left--possibly until it's too late.

One opportunity this vacant space provides is conversion to office uses. Because of Lee County's good telecommunications infrastructure and abundance of workers with customer service skills, in the last several years it has gained national recognition as a good place to locate customer service, call center and back-office operations.

These kinds of operations employ many people and have overlapping shifts and require large amounts of parking that can often only be met by vacant retail centers.

Bayshore Shopping Center in North Fort Myers is one example where this conversion has been successful. In 1997, LYNX Services, a subsidiary of Fortune 500-glass products maker Pittsburgh Plate Glass, located a national claims management center for autoglass replacement in a vacant Winn Dixie at the center, absorbing 41,000 square feet of vacant space. LYNX currently employs 329 people.

From my discussions with the Economic Development Office of Lee County, it continues to show other big-box vacant space to companies interested in locating these types of operations in Southwest Florida.

New Entrants

While Lee County saw many smaller new retailers coming into the local market in 1997, most of the "big-box" national chains already are here. Having locked up the local market, they've prevented any influx of new competition with a few exceptions.

Lowe's returned to the area with 310,000 square feet of space at stores in Cape Coral and south of Fort Myers.Target was one of the few national retailers that built an entirely new location (instead of repositioning an existing store) with its 105,000-square-foot store in Bonita Springs.

Another "new" entrant is actually an old friend and simply continued the rapid expansion it has forged during the last several years.

Southland Corporation, owner of 7-11 convenience stores, planned or built eight new stores in 1997. We also saw four new Eckerd's and three Walgreen's.

Auto parts discount stores also found Lee County an attractive market. During 1997 three Auto Zone's, one Auto Quest and one Discount Auto Parts opened new facilities

All this adds up to a healthy but slower outlook for the retail market. What we'll see during the next couple of years is a "cooling off" period, the natural completion to a business cycle that began nearly a decade ago with a land rush, that turned into a construction boom, that created a market with some excess space.

As the cycle concludes, we will enter a slower period to allow for absorption.

Frank D'Alessandro is president of Frank D'Alessandro Commercial Realtors in Fort Myers.