After a difficult first quarter, rents improved slightly and occupancy was at least stable in the Northern Virginia retail real estate market in the second quarter of 2012. Reis recorded no great changes in major market indicators. For the Washington, D.C. retail market, Jones Lang LaSalle notes in their National Retail Outlook that rents have dropped 14% since mid-2007 “but are expeted to pick up this year.”
The Northern Virginia community-neighborhood shopping center market posted a 6.8% vacancy rate in the second quarter, unchanged from the first quarter but up 40 basis points from 12 months earlier. The rate has been over 6.0% since 2009. July data from Reis give a rate of 6.9%. The national rate for this property type is 10.8%. The South Atlantic rate is 11.0%. As in the first quarter, Northern Virginia is performing well in relation to its national and regional peers. The days of vacancy rates below the 5.0% mark are long gone, but the current rate, while higher, does not indicate a market with intractable occupancy problems. For power centers, Reis reports second quarter vacancy at 3.3%, up from 3.0% one year earlier. In its National Retail report, Colliers reports a June vacancy rate for Washington, D.C. retail space of 7.3%.
“Vacancy rates for Washington-area retail were down in the second quarter of 2012, according to Alexandria-based Delta Associates Inc.’s mid-year outlook,” the Washington Business Journal reported. “The vacancy rate for all kinds of shopping centers in the region was 5.3%, down from 5.6% at the same time last year.” Delta predicts that the vacancy rate will continue to decline in the rest of the year, this source notes. Reis does not foresee a change in the current rate for year-end 2012. Vacancy is eventually forecast to reach 5.2% by 2016, indicating that Reis expects the market to achieve a level of performance not seen since the pre-recession days.
SUPPLY AND DEMAND
At 84,407 square feet, the Purcellville Gateway community-neighborhood center is the only 2012 completion as of this report date, according to Reis’ latest construction data. There were no first 2012 completions, and only 18,000 square feet of community-neighborhood shopping center space completed in Northern Virginia in all of 2011, Reis reports, but the market appears to be picking up. From 2002 to 2011, a total of 5.6 million square feet of community-neighborhood shopping center space was added, averaging 555,500 per year. Net absorption for that time span totaled 4.6 million square feet, or 456,800 per year on average, a fairly healthy rate. The two years of negative net absorption (2009 and 2011) came towards the end of that time span. With little new construction, 2011 posted 210,000 square feet of negative net absorption. After 58,000 square feet of negative net absorption in the first quarter of 2012, the second quarter staged a bit of a rebound with positive 99,000 square feet, although July data show another slide to negative 50,000 square feet.
Reis reports one neighborhood center under construction for completion later in 2012: the Boulevard marketplace at Fairfax, at 23,000 square feet, set to finish in October. Reis’ latest construction data reports the second Phase of University Mall community center, at 75,000 square feet, is due to complete in August 2013. One Loudoun, a 702,000-square-foot lifestyle center, is under construction in Loudoun County for completion in April 2014. According to Marcus & Millichap, “the second phase of Stoneridge at Potomac Town Center is one of the largest projects due for completion in 2012. The 258,000-square foot center, located in Woodbridge, Va., will come online nearly 80% pre-leased late this year.” Reis estimates 2012’s 107,000 square feet of new community-neighborhood space will exceed the projected 49,000 square feet of net absorption, but demand is expected to notably exceed new construction afterward.
Reis reports second quarter 2012 average asking and effective rents of $27.79 psf and $24.52 psf for community-neighborhood shopping center space in Northern Virginia. These rents are up 0.8% and 0.9% for the year and 0.8% and 0.9% for the quarter. July data show no change in the rates. Both rental categories lost ground in the first quarter, so the current performances are well received by landlords. Rents have been struggling since the recession took hold in 2008. For power center space, Reis reports an average asking rent of $29.37 psf, up 0.3% from $29.28 psf one year earlier. Colliers reports a “quoted” retail rent of $22.85 psf. As noted, Jones Lang LaSalle reports that D.C. retail rents have declined but should “reach their previous peak by the end of 2016.” This source reports a “quoted rent” of $23.54 psf, up 2.6% year-over-year
Reis forecasts rents will remain flat in 2012, with asking and effective rents rising 1.0% and 1.1%, respectively. Afterward, however, rents are forecast to post more solid annual increases, but not until 2016 are rents projected to show strong gains of more than 3.0% for both rental categories.