Las Vegas
During the second quarter of 2009, the Las Vegas commercial retail sector in Southern Nevada remained weak as tenants vacated more space than they moved into, a trend that has prevailed for three consecutive quarters. The amount of occupied space (46.3 million square feet) is at its lowest level since the third quarter of 2007; with nearly 4.5 million square feet added to the market since that point, vacancies in anchored centers reached their highest level in history.
By mid-2009, the retail market reported 51.3 million square feet of inventory, which was consistent with the preceding quarter (Q1 2009) as no material projects completed construction during the quarter. It is worth noting Deer Springs Town Center, a large-scale power center, completed some space during the first quarter of 2009, with additional space expected to be turned over to tenants in the third quarter. The phases of the project have been segmented into their respective quarterly periods for reporting purposes.
Vacancies climbed to 9.8 percent as vacant space totaled over 5.0 million square feet. The vacancy rate was up from 9.3 percent in the preceding quarter (Q1 2009) and 6.3 percent one year ago (Q2 2008). For comparison purposes, the market has averaged vacancies of 3.8 percent during the past decade. Net absorption remained negative with 224,200 square feet of net out-migration during the quarter, bringing the year-to-date figure to negative 445,200 square feet.
The economy continues to play a critical role in the performance of commercial retail real estate. The impact of a recession that has spanned greater than a year and a half, a weakened housing market and a fragile job market all put downward pressure on consumer spending. Reduced demand for goods and services has caused many retailers to adjust their business models. Unfortunately, it appears that contraction is likely to continue through the balance of 2009.
Reno-Sparks
The united prayer of commercial real estate brokers for a positive retail quarter fell on deaf ears. The vacancy rate escalated to 15.42%, from 14.98% last quarter, but we had positive absorption of 249,752 square feet for the second quarter of 2009. The positive absorption is great news and was due to scattered infill projects, second phases of successful shopping centers and the Legends at Sparks Marina, which came online with 273,402 square feet of new construction, which includes over 20 new retail outlet stores.
After the retail carnage of 2008, we hoped to see a slow down of store closures. However, both national and local retail sectors continue to struggle and continue the long free fall down the rabbit hole, as only a few stores have been backfilled. Grocery anchored centers have faired well as shoppers prepare more food at home and have decreased discretionary spending. Power centers, home to junior anchor boxes, have not faired well because of the reliance on disposable income. Junior anchors have led the charge in closing stores, mostly through national bankruptcies and acquisitions that represent over 900,000 square feet of vacant space.
Shop space activity has not faired well, due to a weak economy and housing market, the anchorless centers have resulted in the biggest shop tenant loss because anchors help generate traffic which helps impulse purchases for the smaller inline tenants. Shop space rents have fallen by $0.25 in the second quarter of 2009, to $1.65 per square foot per month, triple net. This is a direct reflection of aggressive leasing tactics being implemented by landlords. We have also seen an increase in rent abatement and a decrease in TI dollars. Lease terms are being shortened, due to landlord’s hedging against the turn around of the economy and if a landlord is lucky enough to see a five or ten year deal, the early lease termination kick out clause has reared its ugly head and is tied to gross revenues of the business.
Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno
