Trends in retailing and retail real estate in Hampton Roads are less than inspiring. Cushman & Wakefield/Thalhimer reports successive monthly declines in retail sales through the second quarter. Lower gas prices didn’t help: “spending fell sharply at other [non-gas station] stores, signifying consumers chose to keep what they saved at the gas stations… Same store sales tumbled at retailers that sell sporting goods and leisurely items. Reports of higher sales for retailers were only in certain sectors: clothing outlets, liquor stores, groceries, and Amazon.com.” A decline in leasing according to this source has resulted in negative absorption for all retail product combined for the second quarter.
Reis’ reporting on 26.1 million square feet of community-neighborhood shopping center space reflects a similar trend. Net absorption through the first half of 2012, following an extended period of negative or, at best, flat activity was negative 137,000 square feet. The total for the second quarter alone was negative 67,000 square feet. July’s positive turn on the order of 26,000 square feet will be followed by an additional negative count for the remainder of the year. Vacancy, running at or close to 10.0% since 2010, pushed upward in 2012: at 10.5% the second quarter rate was up 30 and 70 basis points, respectively, for the period and year-over-year. The latest rate, moreover, marked the peak of the cycle and was the highest reported by the firm for this market since the mid-1990s. While July’s improved demand subtracted 10 basis points, an additional increase is expected for the rate for year-end. The second quarter national vacancy rate for this property category was slightly higher at 10.8%. Rents reflect the dreary profile. At $14.83 psf and $12.32 psf, mean asking and effective rates for the second quarter were down 0.1% and unchanged for the period and were up 0.1% each since year-end following losses at about 0.5% last year. Positive growth at 0.2% followed for each rate in July.
Reis reports two projects in this property category under construction as of mid-September. The 60,000-square-foot The Shops at 31 Ocean neighborhood center, part of larger $72 million mixed-use development that has been a source of considerable local attention, is underway at a beachfront area in Virginia Beach. Gold Key/PHR Hotels and Resorts is the developer. Construction of the 300,000-square-foot Harbour View Marketplace community center in Suffolk remains incomplete (stores, however, are operating in the project). Earlier this year Cushman & Wakefield/Thalhimer reported 40,890 square feet available for lease. Meanwhile, the active development of large-format projects in the pre-recession period, including a number of power centers in Virginia Beach, Newport News and elsewhere, has yielded to a period of quiet. No regional or power center projects were underway per the date of this report. Marcus & Millichap expects the development of additional Walmart Neighborhood Market stores to result in an intensification of the local “grocery wars.” One will rise at a site adjacent to the stalled 210,000-square-foot Settlers Market at New Town mixed-use project in Williamsburg which, this source reports, recently broke ground.
The negative turn expected for net absorption by Reis for the community-neighborhood shopping sector over the remainder of the year should push the vacancy rate to about 11.0%. A flat performance for rents is expected over the same span. The year 2013 should bring improvement across the board. “The outlook for Hampton Roads isn’t all bad,” summarizes Cushman & Wakefield/Thalhimer.