Retail retrench | nnbw.com

Retail retrench

Pat Patera

Shopkeepers are feeling the pinch since the residential market went wobbly and taxable sales in Washoe County have fallen nearly 5 percent in the past seven months compared with the same time a year earlier.

Although real estate brokers who specialize in retail properties say vacancy rates haven’t risen much so far, cracks are appearing in the market for space in strip centers.

The current vacancy rate in retail properties is within the normal range, says Shawn Smith, vice president, retail services group at Colliers International. His firm tracks spaces above 10,000 square feet, and estimates the vacancy rate at 8 percent.

Retailers are still looking at new locations in this market, says Kelly Bland, senior vice president, retail properties, at NAI Alliance. His company estimates retail vacancy rates overall hover at 9.6 percent, but that jumps to 12 percent for in-line shops (those in the 2,000-square-foot range) at strip centers.

That’s up only a bit in recent months.

About 53,000 more square feet of retail space was occupied in the market at the end of the first quarter than at the end of last year. Retailers moving in took 160,000 square feet, while those leaving the market left 107,000 square feet.

Rents in retail spaces are static or have gone down some, says Roxanne Stevenson, senior vice president and team leader for the retail services group at Colliers. It’s definitely a tenant market in some centers, she says.

An new analysis by Colliers suggests landlords may need to consider incentives as retail brokers report that some tenants are now pushing back on rents, re-trading deals and even trying to renegotiate existing leases.

The analysis also showed that in 2007 the average monthly asking rents averaged $1.85, with space in prime, street-front and end-cap locations reaching up to $3.50 per square foot.

The softening market is good news for some retailers, who can now get space in centers they couldn’t breach before, says Stevenson. Before, developers looking for a certain synergy were picky about the mix. Now retailers launching new concepts or those lacking a strong financial base may get a hearing from property owners.

While most retailers feel the pain of pinched pocketbooks, not all feel it equally.

The slowdown has hit mom-and-pop shops the hardest, says Smith, pointing to those who lease 1,200 to 1,800 square feet of in-line space at centers. “This market is really putting the squeeze on them.”

Adds Bland, “Smaller tenants are struggling with the economy.” He says restaurants and clothing stores in particular are taking a hit.

Stevenson says, “We’ve seen some smaller tenants having difficulties, particularly those in freestanding centers lacking a strong anchor store.” Also struggling are centers in new residential areas that didn’t develop as strongly as expected.

Mom-and-pop shops that were pushed out by big boxes remain skittish about re-entry, says Kenneth Mattison, vice president, retail, at Grubb & Ellis|NCG.

And some new construction has stalled, says Smith.

“If not already started, it’s been put on the shelf. But the anchor tenants remain interested for 2010-2011 dates.”

Developers of shopping centers, however, need to work harder.

“It used to be you could buy a prime corner and fill it pretty quickly,” says Mattison. But that’s no longer the case.

From big-box retailers to chains such as Starbucks, many national retailers are scaling back their plans to open new stores Mattison says.

Not all centers are suffering.

Legends at Sparks Marina, for instance, is going forward great guns, says Smith.

And Spanish Springs centers are moving forward with carefully phased construction, says Stevenson. Eagle Landing is going ahead, with tenants signing. Los Altos Crossing also is moving ahead in phases.

“I think 2008 will be a challenging year,” says Bland. “At some point, the slowdown in the economy will impact different income brackets; the higher end.”

But Smith points to a light at the end of the tunnel. “Housing will pick up in 2009,” he predicts, “and retail will follow in 2010.”

The retail downturn, Mattison says, is following a familiar pattern to previous market cycles.

Retail was the last to be affected by the housing downturn, and it will be last to react when the economy returns to full gear.