Sign of the times: Vacant strip malls Bad luck, speculation hurt, but better times still two to three years away

Sign of the times: Vacant strip malls

Bad luck, speculation hurt, but better times still two to three years away

By Lydia Fiser
Record Intern
Publication Date: 07/26/08

Palm Plaza on State Road A1A South opened 10 months ago, but driving by it, it doesn't look open.

Ten out of the 11 units are empty. The only one that has been leased out is a Dick's Wings restaurant that received a notice Friday stating it had to pay its rent for May, June and July within three days or it would lose the unit.

"In regular circumstances it would have been unusual to not have filled those units by now," said Jonathan Bamberg, the real estate broker for Palm Plaza.

But in the poor economy, it has become common for it to take long periods of time to find businesses to come in.

"It's not a happy circumstance, but it is true market," he said.

Bamberg's situation exemplifies the state of commercial real estate. On A1A, from the Bridge of Lions to Crescent Beach, there are more than 45 empty store fronts.

One of the largest groups is Ocean Front Plaza, a strip mall on A1A with 17 empty units that have been empty since the building was ready for tenants a year ago.

It has yet to get its first tenant.

This plaza's lease rates are higher than many of the others in the area, the real estate broker for the building said.

"It might have been over-built for the area, the money put into it," said the broker, Tish Enders.

The owner has had businesses inquire into leasing some of the units but has been particular who he wants to rent to, she said.

"He'd rather it stay vacant than have a tenant leave in a year," she said.

The vacant shop windows in St. Johns County, like those of Ocean Front Plaza and Palm Plaza, are a testament to how the current economy has affected the community.

Bad timing, bad times

Experts think there are a few possible causes of the suffering industry.

Bamberg, the real estate agent, said bad timing is one problem.

Some developers planned the building of new strip malls between 2003 and 2005, before the market turned bad. When the buildings were constructed it was "just as we were in the rapidly deteriorating real estate market," he said.

So, developers were left with new buildings and no tenants because possible tenants had a hard time finding the money to open businesses and keep them open.

Another problem is that small businesses are facing tough times, said Warren Portman, owner of the Portman Plaza at the intersection of State Road 312 and A1A.

"The economy is in the dumper, gas is up to $4 a gallon," Portman said. "Consequently what this has done is hurt small businesses because people have less disposable income to spend."

Olde Carriage Realty owner Arnold DeLorenzo agrees.

"This economy is so bad that it's even hard to find tenants now," he said. "It's just hard times."

Speculation took over

Nick Sacia, the executive director of the Economic Development Council of St. Johns County Chamber of Commerce, said another possible cause of the vacancies is the business model developers followed.

"During the real estate boom, we kind of got away from traditional economics in real estate," he said.

Normally, developers would buy or build a strip mall and plan to make money based on businesses they rented out their units to, he said.

But during the boom times, many developers no longer followed this strategy, he said. Instead, they never planed to make much money off of renting units, but instead planned to make money by selling their property that they predicted would substantially increase in value in a short period of time.

"They stripped out the business factor and went straight to a real estate speculation and then put a business on it," Sacia said.

But then the market changed, the boom times ended and developers were stuck with an investment that could no longer make them a sizeable profit, if any at all.

"Commercial real estate is really only worth what you can produce on that land, and we got away from that. It just got to be speculative," Sacia said.

Commercial getting better

Bamberg is hopeful for the future, though.

"It appears that residential has made a return, and commercial is improving," he said. "It does look like we have finally reached the bottom of the market as far as this part of Anastasia Island."

Palm Plaza seems to be looking toward a brighter future too, now that they've dropped their rental prices.

"We're getting more qualified individuals making inquires into the property," he said.

Bamberg said a clothing store and an out-of-state company are looking into some of the units, and he hopes at least three empty units will be filled soon.

"Before the end of this season's out, we might work our way up all the way to having a bad year," he said jokingly.

Despite glimpses of hope, though, he thinks it will take 24 to 36 months of a slowly improving market before it gets back to normal.

"It'll be a buyer's market for at least the next two or three years," Bamberg said.

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