Commercial Real Estate Market - October 2010

Retail Summary

Second Quarter 2010

Las Vegas    

    Vacancies remained relatively flat as average asking rents among anchored-retail centers continued their move downward during the second quarter of 2010.  Reporting a vacancy rate of 10.4 percent at the close of the second quarter of 2010, vacancies were relatively stable compared to the previous quarter, but linger 0.2 points above the 10.2 percent witnessed during the same period of the prior year (Q2 2009).  As the vacancy rate remains elevated with little demand for the nearly 5.4 million square feet of vacant space, downward pressure continues to be exerted on average asking rents.  On a per-square-foot basis, average monthly rents fell to $1.68, a 16.8-percent decrease from $2.02 witnessed just one year ago.  

    By quarter-end, the market witnessed positive absorption as more retail tenants moved into space than moved out, for a total of 165,600 square feet of positive absorption.  However, excluding pre-leased new construction, the positive absorption figure still suggests limited positive activity as only 26,200 square feet of second-generation positive net absorption occurred during the quarter.

    At the end of the second quarter, the retail market reported 51.9 million square feet of inventory, as 139,400 square feet of new space was added to the market with a Lowe’s being completed in the northwest submarket.  Projects that remain actively under construction total approximately 568,800 square feet while plans for 5.1 million square feet remain on the drawing board.  Inventory figures exclude nearly 1.3 million square feet of space that has stopped development due to current economic conditions.

    Weaker-than-expected consumer spending and consumer confidence levels have yet to report the strength normally witnessed in a post-recession recovery and have consumers and businesses alike remaining cautious.

Reno-Sparks    

    “The frosty standoff between retail landlords and retail tenants in Northern Nevada is slowly beginning to thaw. Landlords are motivated, select tenants are active, and leases are being signed. That’s the good news. The bad news is that while transaction velocity has increased significantly over the first half of the year, it’s very difficult to even loosely define what’s happening as a “recovery”. At the end of Q2 retail vacancy in the greater Reno/Sparks market sits at an unprecedented rate of 17.02%, a .52% increase from Q1. Washoe County taxable sales were down 3.8% in May 2010 compared with May 2009. Unemployment for Reno/Sparks is at 13.6%, well over the national average 9.5%, but slightly lower than Las Vegas at 14.8%. With few exceptions in the marketplace, tenants sit comfortably in the driver’s seat when negotiating deals, the root cause being the few tenants that are growing face very little competition for the spaces they want.

    On a national level, fears of a double-dip recession loom, with unemployment and housing having been virtually unaffected by the myriad of stimulus packages and bailouts. Economists seem divided on which way the economy is heading, and perhaps the logical extension of that is a philosophical division among retailers with some viewing this as the best time to expand and others still bunkered down. Landlords are split as well, with some believing the roaring rents of 2006 will soon return and will accordingly wait to sign long term leases, and some accepting the reality of today’s marketplace. While both sides can make valid arguments, only time can decide the winners and losers.”

Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno