The new cycles of development seen in the residential and other commercial real estate sectors as effects of the strong economic rebound are conspicuously absent in the retail market. This, however, is nothing new. A low profile for retail development has been characteristic of the Seattle area for years. Not since 1998 has a regional-scale project completed here. And the last power center deliveries took place in 2008. Only five projects with a combined total of only 392,355 square feet, including four in the community-neighborhood center category, were under construction per the date of this report. Only one, at 10,600 square feet, will comprise the 2012 metro area retail construction completion total. Only 214,750 square feet completed construction all told last year. And only 1.2 million square feet, dominated by 936,500 square feet of community-neighborhood center space, had reached the planning phase as of mid-year—small totals for a metro area of this size with, moreover, strong economic and population growth profiles. The latest project to break ground and the largest underway is Regency Centers’ 280,100-square-foot, grocery-anchored (by Safeway) Grand Ridge Plaza community center in east suburban Issaquah Highlands. Construction commenced in July and will complete in October 2013.
With no newly completed construction, net absorption in the community-neighborhood shopping sector through the first half of 2012 was favorable at 128,000 square feet. Vacancy ended the second quarter at 7.2%, down 40 basis points from the quarter before, down 30 year-over-year and fully 360 basis points below the second quarter national rate for this product category. In July, 22,000 square feet of positive net absorption were accompanied by no additional change in vacancy. Additional declines in the rate along with additional positive net absorption are expected for the remainder of the year. Rent growth in this sector, low vacancy aside, has not been strong. At $22.99 psf and $20.24 psf, second quarter asking and effective averages were up just one cent each since year-end (growth too small to calculate at higher than 0.0%) following respective increases of 0.1% and 0.0% in all of 2011. July followed with growth at negative 0.1% and 0.0%, asking and effective.
Despite the low development profile and recent improvement in occupancy, the second quarter power center vacancy rate was relatively elevated at 7.2%, down 110 basis points for the quarter, down 80 for the year yet 90 points higher than the second quarter national power center rate. At $32.15 psf, the average second quarter asking lease rate for non-anchor power center space was up 0.6% for the quarter and was up 0.4% year-over-year. Only one such project, the proposed 425,000-square-foot power center at the Stadium Place mixed-use development in Seattle, appears on Reis’ list of planned and proposed retail developments. Daniels Real Estate and R.D. Merrill are partnering the “mostly residential” project, as described by the Puget Sound Business Journal. A development timeline for the retail was not available per the date of this report.
Additional positive net absorption in the community-neighborhood sector over the remainder of the year should drop the vacancy rate below 7.0%. Rent growth should remain sluggish nonetheless. Reis expects gains of only 0.3% for the asking and effective average lease rate for the year. Additional progress, along with higher rates of rent increase, is anticipated for 2013.