North Federal Highway Market Study: Key Findings

North Federal HighwayMarket Study: Key Findings WTL+a Real Estate & Economic Advisors Washington, DC In association with: RDS Retail & Development Strategies Arlington, VA Prepared for: Delray Beach CRA Delray Beach, FL August 12, 2014

Objectives of the Market Study • Update 1999 market study of revitalization & redevelopment potentials • Analyze demographic & economic characteristics • Evaluate real estate market trends & conditions • Measure real estate market potentials, estimate absorption/phasing for key uses: • Residential • Speculative/multi-tenant office • Lodging/hotel • Retail & food service • Guide public decisions about zoning, additional infrastructure & other public improvements along the corridor

Study Area Context Study Area

Study Area Land Uses • 206 acres • 46+/- acres & 375,000 SF of “workplace” uses: • 153,300 SF retail (41%) • 126,000 SF auto-related (34%) • 38,400 SF warehouse (10%) • 30,100 SF demolished (8%) • 18,200 SF restaurants/food service (5%) • 8,800 SF office (2%) • 5.6 vacant acres in demolished uses (excludes Swap Shop site) • 515 housing units • 47% owner-occupied • 34% renter-occupied • 19% “unoccupied” • Traffic volumes in 2013 averaged 26,600 vehicles per day

Proposed Development Projects • Beachway Motel: 13 rooms • St. George site: • 38 townhouses • Mid-2015 delivery • Southgate Motel: 29 rooms • Goodwill of Delray: 1,518 SF addition • Delray Preserve: • 188 proposed MF units (22 units/acre) • Borton Volvo: 17,226 SF auto-related • 2645 North Federal: • 11,311 SF professional & medical office space • Gulfstream Villas: 15 townhouse units

Key Market FindingsDemographics (2000-2013) • Very strong population growth in Palm Beach County: 1.3 million residents • Population increased by 214,500 in 72,700 new HHs • Delray Beach: 61,800 residents • Added 1,780 residents = 820 HHs • Limited growth next 5 years: 855 residents in <300 HHs • Since 2000, Boca, Boynton & West Palm growing significantly faster than Delray (9,700 to 21,000 new residents) • Study area’s population stable; new housing will add new residents • Compared to City, the study area: • More affluent (annual HH incomes of $79,600 vs. $66,600) • Spend more on retail ($20,700 vs. $17,500) • Spend more on Food & Beverage ($6,700 vs. $5,700) • Has fewer unoccupied & vacant housing units

Key Market FindingsEconomic Profile • 619,000 jobs in Palm Beach County • Economy in recovery from 2007—2009 recession (49,500 jobs lost) • 20,200 new jobs created past 3 years • Strongest job growth in Professional Services, Health Care; mirrors national trends • Delray Beach contains 34,700 jobs: 6% of County • Jobs-to-population ratio: 0.58 • 45% of jobs in Services; 27% in Retail • 19% of all jobs in Retail sector are in restaurants

Key Market FindingsEconomic Profile • Job growth is a critical barometer of demand for ‘workplace’ real estate: commercial office, retail, industrial parks, etc. • State forecasts: 83,700 new jobs in Palm Beach County (2013 – 2021) • 5,000 new jobs in Delray if City maintains its current share • Citywide HH retail spending (demand) vs. retailer sales (supply): • $489 million vs. $523 million • Reflects in-flow of visitors to Delray, strength of downtown • Can HH sales (“opportunity gap”) in specific categories be recaptured?

Key Market FindingsHousing Market Performance • Delray Beach housing inventory: • 34,100 units (38% single-family; 52% multi-family) • 8,200+ unoccupied units reflects heavy seasonal occupancy • “True Vacancy” (i.e., empty & available) is low: 6.5%, suggesting stabilized occupancies • Median value: $141,000 (study area: $224,200) • Annual housing starts (2005-2013): • Palm Beach County: 4,800 units per year(62% single-family) • Delray Beach: 255 units per year (61% multi-family) • Confirms market-response to moderate-density product such as stacked-flats • Multi-family rental trends: • Higher rents achieved in Delray than Boynton ($1.57 PSF vs. $1.07 PSF) • Higher vacancy rates in Delray than Boynton (9.8% vs. 3.9%) • All comparables defined by industry as “Class A” quality

Key Market FindingsOffice & Retail Market Performance • Delray Beach office inventory (2006-2013): • 2.9 million SF in 301 buildings; comprises mix of “garden” buildings & industry-standard suburban office parks • Accounts for 12% of County’s 24 million SF inventory • Overall vacancies have jumped since 2006: from 8% to 26.5% • Significant challenges of negative absorption (leasing): (677,000) SF vacated since 2006 • Office Depot HQs relocation to Boca responsible for weakened market statistics • Job growth in office-using sectors is critical • Delray Beach retail inventory (2013): • 3.9 million SF in multiple property types • Accounts for 9% of County’s 44.4 million SF inventory • 239,000 SF of net absorption in 2013 • Strengthening regional role as retail destination • $35 million in recaptured Grocery spending: Trader Joe’s (10,000 SF) & Fresh Market (20,000 SF)

Key Market FindingsOffice & Retail Market Performance

Key Market FindingsHotel Market Performance • Delray Beach hotel supply: • 887 rooms in 7 properties (as defined by STR): comprises 6.5% share of County’s 13,600+ rooms • Inventory includes 95-room Fairfield Inn under construction • Since 2010, annual occupancies have fluctuated between 58% & 70% • 4-year average occupancies: 64.9%, suggests roomnight demand is at threshold for financing new construction (65% to 72%) • Colony Hotel & Crane’s Beach Hotel do not report performance to STR • Solid annual growth in average daily rates (ADRs): $127 (2010) to $145 (2014)

What We HeardStakeholder Interviews • Study area lacks identity/brand; does not benefit from economic engine & strong identity of downtown • Land uses characteristic of aging, low-density suburban commercial corridors in south Florida • In transition: • Land values increasing due to proximity to downtown • Private investment in high-quality residential • Difficult to attract commercial re-investment at current low rents • Values driven by perceived future uses • ‘Hot button’ issues: increasing residential densities; introduction of rental housing (turnover) • Largest contiguous parcels are all auto-oriented uses • How to capture spending from high-income HHs (e.g., Gulf Stream)

What We HeardStakeholder Interviews • Desire for independent, “boutique” retail in walkable district • Narrow lot depths, fragmented ownership/parcel assemblage, adjacent rail line complicate development • Challenges of current densities/zoning: • Will not support significant retail • Precludes ‘Pineapple Grove-type’ development (i.e., surface parking required) • Costs of structured parking too high w/o additional revenues • Is there opportunity to ‘cluster’ new retail (e.g., at George Bush Blvd.)? • How can public improvements & other public policies be used to: • Enhance marketability • Generate private commercial investment • Create pedestrian-friendly areas?

Key Market FindingsMarket Directions Retail & Food Service • Success of Atlantic Avenue has created strong regional destination & identity • Challenges of maintaining specialty retail in a strong food & beverage market, higher rents • Study area retail potentials: • Affected by distance & quality of pedestrian space • Width of North Federal Highway limits easy creation of walkable retail environment • Limited residential densities cannot support walkable retail cluster on its own • Significant competitive environment & higher densities in Boynton Beach • Transitional uses characteristic of South Florida commercial strips • Several buildings worthy of preservation & re-use; “character-giving”

Key Market FindingsMarket Directions • Market-rate Housing • Forecasts suggest limited near-term population & HH growth • Near-term demand likely captured by planned projects (e.g., ZOM) • Transitional land uses in study area suggest opportunities for moderate-density infill residential development & selected mixed-use • Parcel size, ownership priorities & consolidation potential affect opportunities for multi-family housing • Increased residential densities will be critical to support new retail in study area: • Each new resident = 4 to 7 SF • Each new office worker = 2 to 5 SF • Each visitor = 0.5 to 1.5 SF

Key Market FindingsMarket Directions • Professional Office/Business Services • State (DEO) employment forecasts suggest near-term growth: • Retail/Food Service • Professional Services & Finance/Insurance & Real Estate • Job growth in office-using sectors critical to generating near-term demand • If 2,000 of 5,000 new jobs are office-using = 400,000 SF • Current office vacancies = 793,000 SF • Current zoning in most of Delray Beach (& study area) restricts higher-density office development • Suggests small-scale “garden” product & tenant mix • Limited market potentials in the near-term (3 to 5 years)

Key Market FindingsMarket Directions Hotel/Lodging • Sustained annual occupancies meet threshold required by capital markets for financing new construction (65% to 72%) • Fairfield Inn may delay near-term feasibility of new hotel in study area • Key planning question: • Where is best location for future hotel product in Delray Beach? • Locational characteristics that enhance marketability (e.g., Hyatt Place, Fairfield) • Future feasibility studies will be required to warrant conventional financing & determine product type (i.e., business vs. leisure)

Next Steps • Solicit public feedback tonight & continue stakeholder outreach • Estimate potential market demand by use & range (e.g., low/high) • Suggest potential phasing & development strategies • Consider linkages to downtown (e.g., branding/marketing, land uses) • Consider both natural market growth & “induced” markets • Prepare draft Market Study report by 9/15 for CRA review • Submit final Market Study report by 9/30

Q & A

Demographic/Economic ProfileSelected Municipalities in Palm Beach County

Demographic & Economic ProfileCity of Delray Beach

Demographic & Economic ProfileStudy Area

Demographic & Economic ProfileAnnual Household Spending, 2012

Demographic & Economic ProfileCounty Employment Trends, 1995-2014

Demographic & Economic ProfileCounty Employment Forecasts, 2010-2020

Demographic & Economic ProfileCity of Delray Beach Businesses & Employment, 2012

Demographic & Economic ProfileCity of Delray Beach: Retail “Recapture” Opportunities

Real Estate Market Conditions Housing Profile

Real Estate Market Conditions Housing Starts, 2004-2013

Real Estate Market Conditions Market Performance of Selected MF Complexes

Real Estate Market Conditions All Workplace Uses, 2014

Real Estate Market Conditions Office Market Performance, 2006-2014

Real Estate Market Conditions Retail Market Performance, 2006-2014

North Federal Highway Market Study: Key Findings