MIAMI – March 24, 2008 – The housing woes are spilling over to commercial real estate.

Cracks are evident in the office and retail sectors in South Florida and nationwide, according to real estate analysts and brokers.

“We’re definitely seeing things slow down,” said David Luther, a senior associate at Marcus & Millichap, a Fort Lauderdale-based real estate firm. “Homeowners’ concerns affect consumer spending, and that affects the stability of leases in the office and retail markets.”

Just last year, the office market here was hot, fueled by two mega-deals.

The Las Olas Centre in downtown Fort Lauderdale sold for $230.9 million, or $492 a square foot, while Phillips Point in West Palm Beach fetched $200 million, or $474 a square foot. Both were among the richest per-square-foot deals for office complexes in the Southeast.

Now, the deteriorating economy and a new supply of buildings are curtailing enthusiasm for both office and retail properties across the region, brokers say.

Half of the 950,000 square feet of new offices built in Broward and Palm Beach counties in the past year are vacant, and that’s not counting space available at older properties, said C. Evan Davis, research services manager at Grubb & Ellis Co. of Boca Raton.

As a result, the firm’s projected first-quarter office vacancy rate in Palm Beach County jumped to 15.7 percent from 11.4 percent in the same period a year ago. Broward’s projected vacancy rate climbed to 11.9 percent from 9.2 percent.

Job losses are contributing to the vacancies. Real estate-related companies and other businesses are downsizing and need less space, while other firms are putting off expansions until the economy improves, said Jonathan Kingsley, Grubb & Ellis’ managing partner.

“Unless they have an immediate, urgent need for space, companies are waiting on the sidelines for better market conditions,” Kingsley said.

The retail sector also isn’t as robust as it was during the past few years.

Palm Beach County’s projected first-quarter retail vacancy rate is a still-solid 4.7 percent, but that’s up from 3.8 percent during the same period a year ago, according to Grubb & Ellis and research firm CoStar. Broward’s projected first-quarter vacancy is 4.3 percent, up from 3 percent a year ago.

Since the first quarter of last year, 3 million square feet of retail centers was built in Palm Beach and Broward counties, up from 1.7 million square feet built the year before.

Vacancies are growing at shopping centers along main thoroughfares and in the suburbs. At the 92,000-square-foot Wellington Green Square Shopping Center, which opened less than two years ago, three businesses have closed recently.

“We had a great ride, but now we’re seeing a stabilization,” said Trish Blasi, senior vice president of Panattoni Development Co.

The Sacramento, Calif.-based commercial developer is building a 225,000-square-foot center on Southern Boulevard near Royal Palm Beach that will include department store chain Kohl’s and the first Dick’s Sporting Goods in South Florida.

Leasing for some of the smaller shops continues, but Panattoni does not yet have any other names to announce, Blasi said.

Along busy PGA Boulevard in Palm Beach Gardens, blocks of storefronts are vacant at Midtown, a mix of shops, restaurants, offices and condominiums. The long-delayed center opened in 2007 during the housing slump and after three other retail centers nearby. The developer, Ram of Palm Beach Gardens, could not be reached for comment last week.

Fort Lauderdale-based developer Rick Gertz Jr. had better timing. His Costco-anchored Southern Palm Crossing center in Royal Palm Beach opened in 2006 as one of the first new shopping plazas in the village.

Financing, government approvals and other factors aligned perfectly, Gertz said. “You have to bat [1.000] in this business, or else the center doesn’t work.”

The economic slowdown doesn’t seem to be affecting the plans of big national retailers. Several are entering the regional market or opening additional stores in the suburbs.

Aside from Dick’s and Kohl’s, which also is planning stores in Boynton Beach and Miramar, Swedish home furnishings giant Ikea is expected to be part of a redevelopment at the Palm Beach Mall in West Palm Beach. Ikea opened last year in Sunrise.

Gander Mountain Co., a large outdoor sports retailer based in St. Paul, Minn., is due to open next month in Palm Beach Gardens.

The big market leaders are hurting the independent stores, with the smaller tenants seeing their profits diminish. “Mom-and-pops are getting hurt and a little nervous,” said Steve Einhorn, broker/owner of Epic Properties in Davie.

The stampede of big chains is expected to continue because South Florida remains one of the nation’s biggest retail draws.

“We’re still going to have retail growth occur,” said Jonathan Satter, principal of Compass Realty Advisors in West Palm Beach. “But some of the older centers that aren’t well-designed will suffer a little vacancy.”

Copyright © 2008 South Florida Sun-Sentinel, Paul Owers. Distributed by McClatchy-Tribune Information Services.