Metro areas without population growth and with minimal residential development tend to be dead spots for retail real estate, which depends substantially on the expansion of the retailer base, which tends to be limited in such environments. Buffalo claims a total of 13,775,000 square feet in its community-neighborhood shopping center market. In 2011 the construction completion total consisted entirely of the delivery that August of a 186,000-square-foot Walmart Supercenter at the Sheridan Centre community center and a small pharmacy, both in suburban Amherst. The 2012 total will consist solely of the 45,000-square-foot Tri-County neighborhood center in Sardinia, beyond current submarket boundaries (and thus not a contributor to absorption statistics). Reis expects completion this December; construction began in December 2011. No other projects were under way metro wide as of September. Of particular interest in the planning pipeline, however, is the Canal Side mixed-use redevelopment project moving ahead in downtown Buffalo, as described in greater detail in the Office Space section of this report. Reis cites 320,900 square feet of proposed retail space in two phases. Indeed, as described in Special Real Estate Factors, downtown Buffalo may be emerging as a significant submarket for retailing and new retail development. In addition, a 250,000-square-foot expansion of Fashion Outlets Niagara Falls has been proposed.
Community-neighborhood shopping center net absorption through the first half of the year was negative 27,000 square feet (the total for the second quarter alone was negative 43,000). Vacancy ended the period at 13.5%, up 30 basis points from the quarter before, down 10 year-over-year, yet still well above the 10.8% national rate for this property category. A total of 7,000 square feet of additional negative net absorption over the July-August span lifted the vacancy number to 13.7%. The small sub-1.0% increases recorded for the average asking and effective rents for community-neighborhood shopping center space in 2011 have been followed by a slowdown in 2012. At $12.00 psf and $10.27 psf, respective second quarter rates were down 0.4% for the period and were up 0.1% each since year-end. July-August followed with respective gains of 0.2% and 0.1%.
As in the community-neighborhood shopping center segment, vacancy is elevated as well in the local power center market. Reis puts the second quarter vacancy rate at 11.1%, down 60 basis points for the period, down 40 year-over-year and greatly in excess of the 6.3% national rate for this product type. The average asking lease rate for local non-anchor power center space was $15.54 psf, up 0.6% for the quarter, up 1.0% year-over-year. Reis reports a 200,000-square-foot expansion (fifth phase) planned for the Quaker Crossing power center in suburban Orchard Park. Target, Kohl’s, Marshall’s, and Regal Cinemas are among the center’s existing tenants.
The community-neighborhood shopping center space market should see little relief over the remainder of 2012 as absorption remains negative, vacancy stays high, and rents remain essentially flat. A better performance is expected for 2013. Downtown remains an area to watch.