Locally-based Sierra Commercial Real Estate Inc. describes the performance of the local retail market during the first three quarters of 2012 as “a mixed bag of gains and losses” (see Special Real Estate Factors). For the market’s 10.8-million-square-foot community-neighborhood shopping center segment as tracked by Reis, however, there have been more of the latter than the former—with respect to demand, at any rate. Measured by the quarter, absorption was solidly negative throughout 2011 and remained so in the first quarter of 2012, for which the firm counted a total of minus 31,000 square feet. The second quarter, however, followed with 15,000 on the plus side (accompanied by no new supply additions). And July-August, also with no supply deliveries, added 7,000 more.
Community-neighborhood shopping center vacancy, meanwhile, remains elevated: the rate for second quarter was 15.8%, down 10 basis points from the quarter before, up 110 year-over-year and fully 500 basis points higher than the second quarter national rate for this property category. The modest positive performance indicated for July-August shaved 10 points from the rate. Rent growth has taken a positive turn. At $13.87 psf and $11.87 psf, asking and effective averages for the second quarter were up 0.5% and 0.4% since year-end in the wake of respective losses of 0.6% and 0.7% in 2011. Growth was flat overall through July and August but should turn positive again over the remainder of 2012. Gains at about 1.0% are projected for both rates for the year as a whole.
With several major projects run to ground by the economic downturn, actual construction activity has been minimal in the recent term. Reis reports the completion of only one retail project metrowide in all of last year: the 120,000-square-foot Lowe’s Citadel Crossing neighborhood center delivered in November at N. Academy Boulevard and Gallery Road in the Central Springs submarket. Among the major stalled endeavors, run aground by the 2008 bankruptcy of its developer, is the 150-acre Colorado Crossing mixed-use residential-commercial development at Highway 83 and Federal Drive in north Colorado Springs. As indicated in the Office Space section of this report, revival of the project in one form or another remains a possibility. Reis has reported a retail component planned at 800,000 square feet. Whether that number survives revision of the development plan remains unknown at present. Some other large projects, however, are making discernible progress. Northgate Properties’ 200-acre, 2.8-million-square-foot Copper Ridge at Northgate mall near I-25 and Northgate Boulevard in northeast Colorado Springs got a boost in the arm earlier this year with a commitment by Bass Pro Shops for a 117,000-square-foot store. The construction permit was awarded in July, the Colorado Springs Business Journal reported at the time. The developer “expects to make announcements with a few months about other businesses that have signed on to Copper Ridge,” states the report. A hotel and water park are included in current planning. Also in the pipeline is the 575,000-square-foot Market Square-Mesa Ridge power center in south suburban Fountain near Fort Carson. Plans for the 100-acre project were “brewing” as of August, the Journal reported at the time. Strong population growth and additional development are cited as supports for the project. Principals at San Diego-based Lusardi Land Company, which owns the property, “believe now is the time to develop.”
“The outlook for the retail market remains relatively positive,” summarizes Sierra CRE. While progress in Reis’ community-neighborhood center market will be hard to find overall in 2012, 2013 should show substantial improvement as absorption picks up, vacancy falls below 15.0% and rent growth continues. The large stalled projects now seeing new life near watching.