A reviving economy including expansion in the tourism sector (see Special Real Estate Factors) is opening the way toward recovery for the local retail real estate market. Still, vacancy in the community-neighborhood shopping center sector remains elevated and improvement has been very
gradual. At 13.7%, second quarter vacancy in this market segment was down 10 basis points from a quarter earlier amid 83,000 square feet of positive net absorption and 66,000 square feet of new supply deliveries. The rate a year earlier, however, was 20 points lower, and the second quarter national rate for this property category was considerably lower at 10.8%. Second quarter’s positive net absorption total, meanwhile, was the first since the third quarter of 2010. The total year-to-date in 2012 to mid-year was positive 31,000 square feet. July added 15,000 more. Rents, however, have remained weak. At $17.29 psf and $14.80 psf, second quarter mean asking and effective rates for community-neighborhood center space were down 0.2% each for the quarter and were down 0.5% each since year-end. July followed with no appreciable change.
Current construction consists solely of neighborhood center projects. Four with a combined total of 204,000 square feet were underway as of late August for delivery during the fourth quarter this year. Two others, at 32,000 and 66,000 square feet, completed construction in April in the Southeast submarket. One large project, however, will soon break ground: Reis expects an October start for the 683,525-square-foot I-Shops regional center at International Drive and Sand Lake Road West in southeast Orlando. The project, undertaken by Unicorp National Developments Inc., will convert the Wyndham hotel at the site into a $100 million “retail-and-dining complex,” as explained by the Orlando Business Journal in August. For a site just south of I-Shops, the same developer is planning the $200 million I-Drive Live retail-restaurant development. That project, adds the Journal, “also may include a $200 million to $300 million 1,000-room resort, possibly raising I-Drive Live to a $400 million to $500 million project.”
Other large-format development, however, remains sparse at present. However, a few mixed-use developments, an outlet center expansion and the 850,000-square-foot Pavilion at Sand Lake regional-scale project, are listed by Reis as “planned.” Also planned are two power centers with a combined total of 680,000 square feet. Power center vacancy, meanwhile, also remains elevated. Reis put the second quarter rate at 9.3%, up 40 basis points from the quarter before, up 30 year-over-year. The second quarter national rate, for the sake of comparison, was notably lower at 6.3%.
Vacancy in the community-neighborhood shopping center market could rise additionally by year-end before a definitive downward trend takes hold in 2013. Losses of 0.5% are projected for both average rents for 2012. Positive growth should become the trend for rents in the year ahead.