Conditions that would support a substantial market recovery are falling into place. Job growth is favorable, population growth rates have increased post-recession and residential development is again becoming a factor. Cushman & Wakefield summarizes in its second quarter report on the local market, “Nominal new retail development and steadily increasing demand for retail spaces has resulted in a fairly strong retail market, with increasing rental rates, declining vacancy rates, and positive absorption.”
Reis’ data on 40 million square feet of community-neighborhood shopping center space confirm the observation. Negative net absorption’s hold on this market finally was broken during the final quarter of last year. Including second quarter’s 71,000 square feet, net absorption through the first half of 2012 was 88,000 square feet. Vacancy, still elevated, ended the quarter at 12.0%, down 20 basis points from the quarter before, down 10 year-over-year. In July, 12,000 square feet of positive net absorption lowered the rate to 11.9%. The second quarter national community-neighborhood rate, for the sake of comparison, was 10.8%. At $14.17 psf and $12.41 psf, asking and effective averages for the latest quarter were up 0.4% and 0.3% from the quarter before, following similar gains in first quarter. Each rate added two cents in July.
Retail construction was very active prior to the recession, particularly in the Wesley Chapel area of northwest suburban Pasco County, where several large-format projects were developed by major national developers. According to Reis’ September 10 report on individual construction projects, Ben Carter Properties’ Grove at Wesley Chapel regional center remained incomplete per report date. According to the center’s website, the 400,000-square-foot first phase is open; retailers include Dick’s Sporting Goods, Best Buy, and Ross Dress for Less, among others. A 450,000-square-foot second phase “will capitalize on the
success of the existing merchant base by adding additional national and regional anchor merchants; along with complimenting regional and local shop retailers.” The only project underway per report date for completion in 2012 is DeBartolo Development’s 345,000-square-foot first phase of the Riverview Bell Plaza power center in Riverview on Highway 301 on the eastern shore of Tampa Bay. Reis expects completion this September.
Second quarter power center vacancy, meanwhile, was 5.3%, up 10 basis points for the quarter, down 40 from a year earlier and 100 points below the second quarter national power center rate. The second quarter mean asking lease rate for non-anchor power center space was $22.57 psf, up 1.3% for the period, up 0.8% year-over-year.
“Job gains and an improving housing market will drive up retail space demand during a slow point in the construction cycle, strengthening property
operations as a result,” reports Marcus & Millichap. Reis expects gradual improvement for the community-neighborhood center market over the next couple of years. Construction should increase slowly.