“Nashville’s retail real estate market continues to lag in growth compared to office and industrial sectors,” the Nashville Business Journal summarized in a July report. Reis’ reporting, despite progress on the economic front, lends credence to the observation. Net absorption in the 19.7-million-square-foot community-neighborhood shopping center market through the first half of 2012 alongside no newly delivered supply was negative 57,000 square feet (all of which occurred during the second quarter). Vacancy closed the period at 8.4%, up 30 basis points from a quarter earlier, down 30 year-over-year. Indeed, despite the lack of a definitive improvement trend (vacancy has run above 8.0% since 2009), the rate fares well alongside the nation as a whole: Reis put the second quarter national community-neighborhood sector rate at 10.8%. Rents, despite the relatively low vacancy, seem more influenced by the weak absorption. Price growth overall was minimal last year and has remained so since. At $15.37 psf and $13.38 psf, mean second quarter 2012 asking and effective rates each were up 0.1% for the period and were up 0.4% and 0.5% since year-end. July, with negative net absorption of 7,000 square feet added to the year-to-date loss and with vacancy adding 10 more basis points, saw losses of 0.1% for both mean rents.
Vacancy in the power center market also runs low by national norms. Reis put the second quarter rate at 4.3%, down 10 basis points for the quarter, down 50 year-over-year and 200 points below the second quarter national power center rate. At $23.32 psf, the second quarter mean asking rent for local non-anchor power center space was down 0.1% for the period but was up 0.6% year-over-year.
Construction runs slow. Reis expects two projects in the community-neighborhood category with a combined total of 218,800 square feet to complete all told in 2012: The Crossing, a 133,800-square-foot neighborhood center is underway in east Nashville for delivery this October; and delivery the same month is expected for the 85,000-square- foot Southside at McEwen community center in Franklin. Apart from a couple of small freestanding projects for Goodwill and McDonald’s, only a 200,000-square-foot power center at the first phase of the Thompson Station Market Center mixed-use development in Franklin was under construction per the date of this report. Reis cites a January 2013 completion date. A total of 600,000 square feet in three additional phases are planned. According to the Journal, meanwhile, The Gulch and SoBro (South of Broadway) areas in central Nashville are described as “an area prime for more retail development.” “This area is one of the hottest in the market and will continue to be so as the (Music City Center convention hall) is further developed,” a partner at the Nashville office of Colliers International stated in a report cited by the Journal.
While the community-neighborhood center net absorption total for the year will run positive, it will pale alongside the year’s portion of new supply. Vacancy is forecast to end the year at 8.8%, which would stand as the highest rate seen here since 1994. Rent growth under 1.0% is anticipated for the year. The year 2013 should bring better results.