Vacant Miami Retail Space? Good Luck Finding It.

In Miami, even a retail miss can be a retail win. Take the Key Club. 

The American bistro was on a busy corner in the heart of the coveted Coconut Grove neighborhood. The concept was also the brainchild of David Grutman, the king of Miami nightlife, who had launched culinary hot spots Swan and Komodo. Celebrities Lenny Kravitz and David Beckham attended the Key Club’s opening in 2022. And, yet, the upscale grill abruptly closed in June. 

But the 6,700-square-foot space did not stay vacant for long. Chop, a steakhouse concept hailing from Canada, snapped up Key Club’s lease, with plans to open in the coming months. 

South Florida’s retail market is thriving. Vacancies have dropped to impressively low rates. New restaurant concepts, many of them from high-profile, out-of-town hospitality groups, are sprouting nearly every week. Landlords have taken advantage of the moment by raising rents, which has led to the closures of longtime operations. As rates climb, though, even some deep-pocketed groups have buckled and failed to live out their leases, costing property owners. 

The pandemic served as an inflection point for South Florida’s retail market. But, unlike much of the world, which endured mass closures, the health crisis pushed vacancies down in South Florida. As the Sunshine State welcomed millions of new residents seeking fewer livng restrictions, real estate prices skyrocketed, and multifamily properties became a prime asset class — to the detriment of retail.   

Demand for housing far outpaced supply, just as land values, construction materials and labor costs were rising fast. In response, developers jettisoned plans for new retail complexes in favor of residential buildings. Others redeveloped their existing retail properties, some of which were covered in acres of surface parking lots, into housing. 

“It’s very difficult to make the numbers pencil for retail projects — to pay top dollar for a site and pay for the construction with where the retail rents are,” said Alejandro Snyder, a Miami-based broker at Current Real Estate Advisors, who specializes in retail investment sales.

Even as developers have commonly included retail space in their new multifamily complexes, it’s often been far less than what stand-alone retail properties housed. The trend is likely to continue, thanks to the Live Local Act. Parts of the Florida law, which passed last year, target underutilized properties, such as strip malls with expansive parking lots, with the goal of turning them into housing. In return for designating at least 40 percent of units within 120 percent of the area’s median income, developers receive density hikes and protections from opposition at the municipal level.   

With retail developments taking a back seat, “we’re seeing some historic numbers” on the leasing front, said Michael Williams, another broker at Current Real Estate. 

At the close of the third quarter of this year, Miami-Dade County’s retail vacancy rate hovered just below 3 percent, while those of Broward and Palm Beach counties were just under 4 percent, according to data from Colliers. Since 2021, the retail vacancy rates in all three counties have never exceeded 5 percent.

South Florida has remained a hot destination for new-to-market retail operators, even as much of the world reopened post-COVID-19. The region attracted wealthy Northerners, who make up the desired customer base for upscale restaurants. And, with billionaires like Ken Griffin moving hundreds of high-earning employees from his hedge fund and market maker to Miami from Chicago, many hospitality groups are banking on sustained growth. 

The H.wood Group, the company behind L.A. celebrity hot spot Delilah, plans to open its second Miami restaurant on Lincoln Road. Another famed L.A. transplant, Mother Wolf, opened in the Design District this fall. RedFarm, a Chinese-American concept from New York, set up shop in Coconut Grove this year. Felice, a concept from the group behind New York’s Sant Ambroeus, opened in Brickell this fall, and plans to open a Sant Ambroeus in Miami Beach too. 

Catch, the upscale seafood restaurant that originated in New York, already did so earlier this year. Pastis, the iconic New York bistro, signed a lease for its second South Florida restaurant in West Palm Beach this summer. Jeffrey Chodorow is relaunching his China Grill restaurant at the Bal Harbour Shops. Gaia, an upscale Mediterranean concept that hails from Dubai, plans to open in Miami Beach this summer.

The list goes on. 

“If you wait until a retail space is vacant and there’s a sign on the window, you’re typically too late,” said Steve DeMeo, a retail leasing broker with Lee & Associates based in Delray Beach. 

Over the past couple of months, DeMeo has been touring spaces for City Winery, a New York City-born wine bar concept with 12 locations nationwide. Its owner Michael Dorf wants to expand to South Florida. While DeMeo has a few locations “in the hopper,” his client has yet to sign a lease. 

Retail operators are notoriously picky. “Especially in the restaurant business, the location and walking patterns mean the world to them,” DeMeo said. To land the perfect location, then, “some sit and wait,” he added. 

On the flip side, landlords are taking advantage of the moment amid all the competition. “As those longtime leases expire, landlords double the rent,” DeMeo said. “Many restaurateurs are getting priced out.”

Several local favorites have closed in the past few months, including Old Greg’s Pizza in the Miami Design District, Kitchen in Coral Gables, Beaker & Gray in Wynwood, and Root & Bone in South Miami, to name just a few. 

Still, finding a suitable location and signing a lease is just the beginning of the battle, especially in Miami. Securing the construction permits and approvals required to open has become laborious since 2019, when Miami-Dade County commissioners passed more stringent codes for grease traps to prevent contamination in the sewage system. 

Even the most high-profile, experienced operators have struggled to open at times, including Major Food Group. In 2021, the New York hospitality group signed a 10,000-square-foot lease in Miami Beach to open a Sadelle’s brunch restaurant and market. Two years later, it abandoned those plans because of permitting issues tied to the construction of the commercial kitchen. To minimize delays, savvy operators will typically target locations that have already gone through a restaurant buildout.

Another workaround is buying the corporation of a restaurant, which allows the buyer to inherit the existing lease and all the paperwork required to open. That’s what happened with the Key Club, according to the New Miami Times. 

“Even something as stupid as signage — without the existing corporation — will take a long time to set up,” said Felix Bendersky, a retail broker at F+B Hospitality Brokerage, who was not involved in the Key Club deal. With an acquisition, “essentially you’re saying, ‘Here’s my paperwork. Everything is up to code. Everything will move a lot faster.’ ”

Delays still abound. When Chop’s owner Northland Properties purchased Key Club’s lease, it planned to launch in September. As of publication, the steakhouse has yet to open.  

Even in this tight market, some landlords overreach. When Ben Mandel and two partners purchased a 24,000-square-foot retail building on Lincoln Road for nearly $14 million in July, it was half empty. The seller, Aby Rosen’s troubled RFR Holding, had bought the single-story property for $20.5 million just two years before. The investor had struggled to fill the space with tenants willing to pay high enough rents to satisfy the firm’s debt obligations. 

In contrast, Mandel’s joint venture landed a tenant in just five months who will occupy nearly 5,000 square feet. The solution was to acquire the property for 33 percent less than the seller had and offer cheaper rates. 

For landlords these days, the challenge is not finding tenants — it’s keeping them. Even if another tenant wants to backfill a space, a change will still cost the property owner in the form of leasing commissions and allowances for a new buildout, according to Mandel, who runs the Miami-based Tricera Capital. A tight market is great for owners, but they must be careful. 

“A vacancy rate below 5 percent tells me that either tenants are paying more than they should, and they may not be there tomorrow,” Mandel said, “or the landlords decided to accept lower rental rates to fill the space, get cash flow, and survive.” 

Julia Echikson can be reached at jechikson@commercialobserver.com.