Economic & Demographics Context; Downtown St. Petersburg Food & Beverage Supply and Demand; and, Conclusions and Findings.

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1 Memorandum To: Chris Ballestra, City of St. Petersburg From: Paul Lambert, Lambert Advisory Date: August 4, 2016 Subject: Market Assessment St. Petersburg Pier Redevelopment Food & Beverage Service Opportunity Lambert Advisory (Lambert) has completed its assessment of the St. Petersburg Pier Redevelopment Food & Beverage Service Opportunity in the context of the overall Downtown St. Petersburg food & beverage market. The City, as it finalizes its design of the Pier, is seeking to strengthen it s understanding of the food and beverage opportunity at the Pier to 1) best position the food and beverage options at the Pier for success; and, 2) to understand the ability to differentiate the Pier offerings from other core concentrated areas of restaurants within Downtown St. Petersburg. The assessment herein utilizes a combination of economic and demographic data analysis and direct field research to support our observation of the eating and drinking market in and around the Downtown area. The analysis also builds upon a base of information gathered and analyzed for previous economic and market assessments Lambert completed for the Pier s redevelopment in 2010 and 2014, as well as our recently completed economic and market study for the EDGE District. The outline for this memorandum is broken down into three parts: Economic & Demographics Context; Downtown St. Petersburg Food & Beverage Supply and Demand; and, Conclusions and Findings. Economic & Demographic Context As documented in previous studies, Pinellas County experienced a marginal decline in population from 921,842 residents in 2000 to 916,542 residents in However, according to the University of Florida s Bureau of Economic and Business Research the County s 2015 population was 944,971, or an average annual growth rate of 0.6 percent since Based on the Pinellas County Planning Department projections, the County s population is anticipated to grow 0.8 percent on average annually through The City of St. Petersburg followed this same general growth pattern with a modest loss in population from 2000 (248,232) to 2010 (244,769), but an increase to

2 256,681 in 2015; or an average annual growth rate of 1.0 percent during the period between 2010 and This relatively strong growth within the City (compared to the broader County) is in part due to the more than 1,400 condominium and rental units completed in Downtown St. Petersburg over the five year period. Figure 1: Summary of Recently Completed Condominium and Rental Development in Downtown St. Petersburg Name Type Units 300 Urban Flats Condominium 30 Urban Landing Condominium 40 Modera Prime Condominium 329 The Rowland Condominium 20 Beacon 430 Rental 326 Modera 235 Rental rd Street Rental 357 Total (All) 1,411 In addition to the recently completed projects, there are a number of condominium and rental developments in Downtown currently under construction including: The Salvador (47 unit, condominium); One St. Petersburg (253 unit, condominium); and The Hermitage (348 unit, rental). The primary population base that supports business activity within the Downtown area, with the exception of a small, but growing, very wealthy group of residents, is largely middle income. Median household income within Pinellas County and the City of St. Petersburg has remained relatively flat during the past few years and currently stands at $45,535 and $45,044, respectively. Comparatively, the Downtown St. Petersburg Primary Resident Trade Area we have defined (Trade Area) has a modestly lower household income of $39,000. Given the investment in luxury housing Downtown, the Downtown trade area is likely to experience growth in household incomes at a rate faster than the City or County overall but it will take some time for the gap to be closed The boundaries of the Trade Area are shown in the map below and was defined based upon the broader competitive market and the area from which restaurants downtown would most likely draw regular household patrons (not inclusive of visitors or downtown workers). This is not to say that families do not travel across trade area boundaries to go out to eat, they do, but just that the area is where the most consistent resident patrons live. Importantly, we assume the Trade Area retains 75 percent of residents food and beverage expenditure, but draws significantly more from residents in tertiary areas (otherwise referred to as expenditure inflow).. 2

3 Downtown St. Petersburg Food & Beverage Opportunity Assessment Figure 2: Downtown St. Petersburg Primary Resident Trade Area for Food & Beverage Beyond the population base within a reasonable travel trade area, downtown employment is another primary driver of demand for food and beverage sales. The Downtown Trade Area s private employment has seen a modest increase since the recessionary depths of the earlier part of this decade. Healthcare and Social Services has posted relatively strong gains during the past 10+ years, although the financial sectors have experienced very limited growth. There are approximately 30,000+ persons privately employed within the Downtown Trade Area, and the St. Petersburg 3

4 CBD (Downtown area) comprises more than 2.2 million square feet of office space, with a healthy occupancy level above 90 percent. The third principal leg supporting Downtown eating and drinking establishments is overnight visitors. The St. Petersburg/Clearwater visitor market is as robust as ever. The region has steadily increased its visitor base from 4.9 million in 2009 to a record high of approximately 6.0 million in 2015, and the visitor market continues to broaden beyond the heavily relied upon Midwest US market. The European and Latin American markets have experienced solid growth, which has positive implications for the hospitality industry; particularly, in areas like St. Petersburg where the concentration of arts and cultural facilities draw from around the world. While much of the visitor market has traditionally been beach oriented, increasingly, and largely as a result of the concentration of cultural venues and high quality eating options, Downtown is now capturing a significant portion of the demand. In sum, while economic and demographic conditions within the broader Pinellas County and City of St. Petersburg continue to grow, this is being strongly supported by the Downtown s growth as it continues to be a primary focus of redevelopment and growth. Downtown St. Petersburg Restaurant Demand and Supply The economic and demographic conditions within the broader region, the City and Downtown St. Petersburg Trade Area provides the basis for estimating the underlying demand within the food service sector today and looking forward for the foreseeable future. In our previous assessments of the St. Petersburg Pier, Lambert prepared a Retail Trade Model that uses the area s demographic and economic attributes, as well as consumer, worker and visitor spending trends and habits to determine the amount of supportable retail space; and, specifically, demand for eating and drinking establishments/restaurants (including full service, limited service, specialty and bars). Based upon the most current characteristics of the Trade Area, our model indicates the Trade Area currently enjoys approximately 320,000 square feet of total demand for eating and drinking establishments. Given estimated growth of residents, employment and visitor expenditure, demand is forecast to increase to slightly more than 360,000 square feet by 2020; or, net new demand of roughly 40,000 to 50,000 square feet over the next four to five years. 4

5 Figure 3: Summary of Eating & Drinking Demand within the Downtown St. Petersburg Trade Area In Square Feet Eating & Drinking Demand (Sq.Ft.) Net Change 320, ,000 40,000 In addition to assessing the fundamentals of demand for food and beverage uses in the Downtown area, we also evaluated the exiting supply of eating and drinking occupied space within the trade area to understand the balance between supply and demand and, notably, identify any notable gaps (i.e. excess or deficiency in supply relative to demand) that can provide relevant insight into future planning for the area. For this, Lambert conducted an analysis of the supply of eating and drinking places in Downtown St. Petersburg in the areas highlighted in the map below. The supply analysis included the following aspects: We reviewed secondary source of information regarding the supply of retail and eating and drinking places in Downtown St. Petersburg including: Pinellas County Property Appraiser; CB Richard Ellis (CBRE) Real Estate Marketview Reports; and, Loopnet. We conducted a walking plus windshield survey to identify eating and drinking places in downtown by sector. In this case, Lambert divided Downtown St. Petersburg into two subareas the Downtown Core, generally corresponding with the area from Tampa Bay on the east to 4 th Street on the west, and from 5 th Avenue North (including the Vinoy) on the north, to 5 th Avenue South (including USF) to the south and Downtown West, corresponding with the area from 4 th Street, west to 16 th Street, between 5 th avenue north and 5 th Avenue South. 5

6 Downtown St. Petersburg Food & Beverage Opportunity Assessment Figure 4: Map of Downtown St. Petersburg Defining Downtown Core and Downtown West Boundaries Additionally, Lambert conducted a sample survey of available retail listings in Downtown St. Petersburg by size and asking rent. The following is a highlight of the inventory survey of eating & drinking establishments inclusive of the Downtown Core and Downtown West areas: Lambert identified approximately 141 eating & drinking establishments in total in Downtown St. Petersburg. The 141 eating & drinking establishments combine for more than +320,000 square feet, which equates to an average of +2,270 square feet per establishment. The total restaurant inventory surveyed herein is fairly aligned with the current level of demand within the trade area set forth above. 6

7 Of the 141 eating & drinking establishments, roughly 55 establishments, combining for approximately +189,000 square feet are full services restaurants, equating to an average of +3,375 square feet per establishment. 85 of the 141 eating & drinking establishments in Downtown St. Petersburg are limited service establishments, including bars and nightclubs. These 85 establishments combine for approximately +131,000 square feet, equal to an average of +1,540 square feet per establishment. Downtown Core Approximately 93 of the 141 eating & drinking establishments in all of Downtown are located in the Downtown Core sector. These 93 establishments combine for approximately +215,600 square feet, which equates to an average of +2,320 square feet per establishment. Of the 93 eating & drinking establishments in the Downtown Core, 43 establishments, combining for approximately +150,800 square feet are full services restaurants. This equates to an average of +3,510 square feet per establishment. 50 of the 93 eating & drinking establishments in the Downtown Core are limited service establishments, including bars and nightclubs. These 50 establishments combine for approximately +64,800 square feet, equal to an average of +1,300 square feet per establishment. Downtown West Roughly 48 of the 141 eating & drinking establishments in Downtown are located in the Downtown West sector. These 48 establishments combine for approximately +105,000 square feet, which equates to an average of +2,190 square feet per establishment. Of the 48 eating & drinking establishments in Downtown West, 13 establishments, combining for approximately +38,240 square feet are full services restaurants. This equates to an average of +2,940 square feet per establishment. 35 of the 48 eating & drinking establishments in Downtown West are limited service establishments, including bars and nightclubs. These 35 establishments combine for approximately +66,300 square feet, equal to an average of +1,895 square feet per establishment. 7

8 The Table which follows details the breakout of full and limited service restaurants by total square feet and average size square feet for Downtown Core and Downtown West. Figure 5: Restaurant Inventory in Downtown St. Petersburg Sector Downtown Core Full Service Type of Service Limited Service All Eating & Drinking Places Number Total Sq. Ft. 150,800 64, ,600 Avg. Size Sq. Ft. 3,510 1,300 2,320 Downtown West Number Total Sq. Ft. 38,240 66, ,540 Avg. Size Sq. Ft. 2,940 1,890 2,180 All Downtown Number Total Sq. Ft. 189, , ,140 Avg. Size Sq. Ft. 3,380 1,540 2,270 While not terribly large from a geographic perspective, Downtown St Petersburg has a number of reasonably distinct eating and dining districts. For example, Beach Drive and Sundial include the primary concentration of higher end white tablecloth restaurants. Central Avenue, between 4th Street and 9th Street has a concentration of after-work casual restaurants and bars, while Central Avenue between 1st Street and 4th Street has a larger mix of music/entertainment. The EDGE District has created a niche of sports, craft brew, and trendy dining concepts. In terms of rental rates for retail (including restaurants) for Downtown overall, there is a wide variation from $20+ per square foot to in excess of $50+ per square (NNN) along Beach Drive. Generally, the Downtown Core achieves rates in the $25 to $40 per square foot (NNN) range, while the Downtown West area achieves rates more in line with $20 per square foot (NNN) range. As the economy has improved during the past four to five years, rental rate growth has followed suit. Summary Conclusions and Findings 8

9 There are several principal conclusions which can be drawn from our analysis associated with the food and beverage sector in Downtown St. Petersburg and which provide guidance to the relative opportunity, considerations, and focus of new food and beverage space at the Pier. These include the following: As noted above, Lambert as part of its analysis, both did a on-the-ground survey of the space devoted to eating-and-drinking establishments Downtown which constitutes the supply and separately utilized the Lambert Advisory Retail Trade model to estimate demand. When we matched the retail trade model to the onthe-ground supply assessment, there was a clear balance of supply and demand within the Downtown St. Petersburg restaurant sector. Given the relative efficiency of retail as it relates to occupied space including eating and drinking places, we often see a fairly reasonable balance between demand and occupied space, but the highly balanced market in St. Petersburg is striking none-the-less. The broader economic fundamentals for additional demand for food and beverage options within Downtown St. Petersburg remain positive during the next several years. As a result, the development of 20,000 or 25,000 square feet of additional food and beverage space adjacent or on the Pier, which accounts for 6 to 8 percent of the total existing food and beverage space in the Downtown market and 5 to 6 percent of our demand estimate for Downtown by 2020, can be absorbed by 2018 or 2019 without having an appreciable impact on the existing restaurant sector downtown. Developing significantly more than 20,000 to 25,000 square feet of eating and drinking at the Pier or discounting rents below market would likely have a deleterious impact on existing rental rates in the market. Eating and drinking demand and growth is not robust enough to absorb significantly more space without drawing from other areas of Downtown. Likewise, to insure that the Pier does not have an undue advantage in attracting restaurants which might locate elsewhere, it is important that the City establish rents within a range of 6-8 percent of projected sales of eating and drinking establishments locating on the Pier. This can be partially accomplished by entering into leases with a natural break clause that requires the payment of percentage rent over a certain sales threshold. However, it must be noted that establishing rents at 6-8 percent over a 10-year lease period (the maximum allowed at the Pier) is conditioned upon the City delivering to a tenant a warm shell (finished four walls, basic flooring, basic lighting and utilities including HAVC, and stubbed out utilities in the space) and providing a market tenant improvement allowance. Any investment required on behalf of the tenant to bring the property to a warm shell level or 9

10 without a market level tenant improvement allowance would require an allowance or reduction in rent at a level necessary for the tenant to amortize the cost of that additional investment over the lease term assuming that the useful life of the investment is in excess of ten years. While the City contemplates a mix of eating and drinking options for the Pier, as the St. Petersburg restaurant market has further matured and evolved into subdistricts, we increasingly believe that eating and drinking at their pier will be most successful if it differentiates itself from the other downtown districts. Specifically, we believe that the strongest focus for the Pier should be associated with ground floor restaurants and bars with indoor and substantial outdoor seating which take advantage of being adjacent to the water and associated low key relaxed atmosphere substantially enhanced by the relationship of the eating and drinking establishments to the water. While Downtown St. Petersburg doesn t have the beach, it certainly can use the active waterfront and recreation oriented focus of the Pier to draw people when they are looking for a low key (although not inherently low check) eating and drinking experience without having to drive all the way to the beach and contend with a crush of sandy, sunburnt tourists. Places such as a modern version of the old Scotty s Landing (Miami), Shooters (Ft Lauderdale) and Aruba (Lauderdale by the Sea) are good potential models for the type of establishments which would thrive in a unique way at the Pier. Scotty s Landing 10

11 Downtown St. Petersburg Food & Beverage Opportunity Assessment Shooters Aruba As we understand it, the current plan is to spread the eating and drinking establishments along the pier. While this is appropriate for the quick service options (i.e. hot dogs/hamburgers, ice cream, small bar) we have long recommended that the restaurant options be concentrated preferably on the upland or at the foot of the pier to be as close as possible to parking and to take advantage of the agglomeration effect. Spreading the restaurants across the Pier will diminish the concentration of activity necessary to create a vibrant and exciting vibe. In sum, we believe that dining experiences at the Pier which differentiates itself will not only benefit the Pier itself, but add to the attraction of Downtown St. Petersburg overall and in turn add to the restaurant sector as a whole. 11