Q2 2012 Sacramento, California Retail Market Trends

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Q2 2012 Sacramento, California Retail Market Trends

The lingering weakness in the local economy, the depth of the hole into which it slipped, the marked slowdown in population growth, and the decline in residential development pulled the rug out from under local retailing and the local retail real estate market. Some improvement, however, has followed. Absorption in the community-neighborhood shopping center sector exceeded new supply in 2011 for the first time since 2005. The trend has continued. Net absorption through the first half of 2012, with no new supply delivered, was 151,000 square feet. Additional absorption is expected over the remainder of the year (July contributed 2,000 square feet), alongside no new construction completions. Vacancy, declining since midyear 2011, ended the latest quarter at 11.9%, down 10 basis points for the period, down 80 year-over-year, yet still 110 points above the national rate for this property category. Sector rents, following four years of loss, finally have stabilized. At $21.89 psf and $18.15 psf, asking and effective averages for the latest quarter were down a penny each (growth rates of 0.0% and minus 0.1%) from the quarter before and were down a penny and unchanged since year-end—following respective losses all told of 0.5% and 0.4% last year.

While retail construction totals remain small, a few projects proceed. The 165,000-square-foot Vineyard at Madeira neighborhood center, the only project under way at present in the community-neighborhood segment, broke ground in April in south suburban Elk Grove. Reis expects completion in April 2013. With retailer demand beginning to increase, meanwhile, a couple of large-format projects have recently started. Reis reports a September 2012 groundbreaking for the 543,500-square-foot Rocklin Crossings power center in north suburban Rocklin. A September 2014 completion is expected. A 180,000-square-foot Walmart will serve as anchor, the Sacramento Business Journal reported in September. Donahue Schriber is the developer. At a nearby site across I-80, the same developer will add the 380,000-square-foot Rocklin Commons power center. A 2014 opening is anticipated. In addition, Reis reports nearly 4 million square feet planned or proposed for eight new power center developments, the largest of which is the 1.3-million-square-foot project proposed for the Delta Shores master-planned community at I-5 and Beach Lake Road, Sacramento. Reis puts the second-quarter metro area power center vacancy at 7.2%, up 10 basis points year-over-year and 90 points above the national rate. At $30.86 psf, the mean asking rent for local non-anchor power center space was down 0.3% year-over-year.

Meanwhile, Elk Grove, cited above, has been the site of Sacramento’s largest retail development venture of the recent past. Following its 2007 start, the 1.3-million-square-foot Elk Grove Promenade regional center was halted by the recession in 2008. The Howard Hughes Company subsequently took over the project from initial developer General Growth Properties following the latter’s 2010 emergence from its bankruptcy reorganization. While hopes that work would soon resume under the new ownership were revived earlier this year, recent reporting suggests additional delay. Reporting in late May, Elk Grove’s News10.net expects a wait of “a few more years” before construction will resume on the half-built mall. Meanwhile, Reis expects construction of the 540,000-square-foot lifestyle center component of Broadstone Land LLC’s Palladio at Broadstone in Folsom to complete in September 2013. A number of stores, however, are now operating at the project (which broke ground in 2008). And an H&M clothier store opened at Palladio in early September 2012, according to the Business Journal.

Additional positive net absorption alongside no new supply deliveries should lower the community-neighborhood sector vacancy rate to 11.6% by year-end. While losses of three cents are indicated for both mean rental rates for July, modest growth should be the trend over the remainder of the year.