Riding on favorable rates of job and population growth, local retailing and the local retail real estate market fare well. “Over the near term,” writes Marcus & Millichap in its third quarter 2012 report on the local market, “job growth in better-paying industries will lend support to Salt Lake City’s housing market and maintain upward pressure on consumer spending, which bodes well for local retail property owners. Total retail sales in the metro have already eclipsed the pre-recession peak by a wide margin, which has jumpstarted expansion among major chains in the metro” (see Special Real Estate Factors for related commentary).
All the same, vacancy rates, while declining, remain elevated. For 15.9 million square feet of community-neighborhood shopping center space, Reis puts the second-quarter rate at 13.1%, up 10 basis points for the period, up 20 year-over-year. The second-quarter national community-neighborhood sector rate, for the sake of comparison, was 10.8%. Net absorption for the first half of the year, including second quarter’s negative 17,000, was positive 45,000 square feet alongside no newly delivered supply. At $16.04 psf and $13.35 psf, mean asking and effective rents were up 0.5% each for the period and were up 0.8% year-to-date, following small losses all told in 2011. July–August followed with additional improvement—30,000 square feet of positive net absorption and a decline in vacancy to 12.9%. Rent growth over the two-month span was flat. At 10.5%, second-quarter vacancy in the power center market, down 110 basis points year-over-year, also was high: the national rate for the quarter was 6.3%. The mean asking lease rate for non-anchor power center space was $24.19 psf, up 0.9% since the second quarter of last year.
A number of retail projects of a variety of types are in various stages of development across the metro area. The community-neighborhood sector claims two: the 105,000-square-foot Riverwalk Shopping Center is scheduled for a November 2014 finish in suburban Midvale, and the
90,400-square-foot first phase of the China Town neighborhood center in the South Central submarket will finish this October; a smaller second phase is planned. A December groundbreaking is scheduled for the 56,000-square-foot third phase of the 300 West Town Center neighborhood center in Salt Lake City. Meanwhile, an October 2012 completion is expected for the 350,000-square-foot first phase of the One 14 power center in Sandy. And 450,000 square feet of power center space completed in the first phase of Station Park in April in Farmington. At the same Station Park mixed-use development, the 300,000-square-foot second phase of the Village at Station Park is scheduled for completion in April 2013. Construction began in June.
Downtown. The vaunted $1.5 billion City Creek Center mixed-use development opened its 705,500 square feet of retail in downtown Salt Lake City in March. The Church of Jesus Christ of Latter-day Saints (LDS) is the project’s master developer. Mall owner Taubman Centers and City Creek Reserve developed the retail component. As of the second quarter, the project was fully leased, reports Marcus & Millichap. On the other hand, notes Cushman & Wakefield, City Creek “has inevitably had a negative impact” on the open-air Gateway mall, “which has … seen many of its tenants lost to the new development.” While The Gateway faces an uncertain future, it also has “a unique opportunity to rebrand and reposition itself within the market.” As reported by the local Fox news station, “The Gateway is working on bringing in more merchants.” Interestingly, this source reports, “the success of the Gateway is important to the [City Creek] center as well; they favor any business that brings people downtown.”
Reis expects little change in the vacancy rate for the community-neighborhood shopping center market over the remainder of the year and for the period following, as demand fails to move substantially ahead of new supply. Gains of 1.3% and 1.5% are forecast for sector asking and effective average rents for the present year; moderate acceleration in growth rates should follow.