Vacancies declined for the second consecutive quarter, and average asking rents among anchored-retail centers showed signs of continued weakness. At the close of the third quarter of 2010, the vacancy rate fell a modest five basis points to 10.7 percent compared to the previous quarter. Compared to the same period of the prior year (Q3 2009), the vacancy rate remains 0.3 percentage points higher. While the vacancy rate has come down for two consecutive quarters, it has continued to hang above 10 percent for more than a year, suggesting pressure on average asking rents will continue. During the third quarter, average asking rents fell to $1.60 per square foot per month, or down 17.9 percent from the $1.95 reported one year ago. Prices are off 27.3 percent from the peak reported in early 2008.
During the quarter, the market witnessed a total of 47,200 square feet of positive net absorption as more retail tenants moved into space than moved out. This is the second consecutive quarter in which the market witnessed the absorption of second-generation space outpace move-outs, a trend not reported since the end of 2005.
By the end of the third quarter of 2010, the retail market reported 51.2 million square feet of inventory, as 25,200 square feet of new in-line-shop space was completed in a Lowe’s anchored center in the northwest submarket. Projects that remain actively under construction total approximately 524,000 square feet while plans for 4.7 million square feet remain on the drawing board. An additional 1.3 million square feet of space has stopped development due to the current economic environment and is not likely to resume in the near term.
With taxable retail sales showing few increases over the latest downturn, and consumer confidence near record lows, retailers will likely continue waiting before further pursuing growth opportunities in Southern Nevada.
Reno/Sparks’ retail market continues to search for a solid floor to re-build from. The area had a positive net absorption during the third quarter to the tune of 40,781 sf. However, all of this net absorption can be attributed to one large lease from Easter Seals Thrift Store which occupied just over 43,000 sf in the Plaza 500 Center on Oddie Blvd. The space was recently vacated by Save-Mart. Without that one lease, there would have been a continuation of negative net absorption.
During the quarter, there were 23 businesses moving into shopping centers while during the same period, 38 businesses moved out. The market will continue to struggle to post consistently positive net absorption until the ratio of move ins to move outs becomes positive.
Restaurants continued to be an active area of the market for both new and closing businesses. Newly opened restaurants include Great Basin Brewery, BJ’s and Togo’s. There were also a number of restaurants that closed during the quarter including Aloha Sushi, Yama Sushi, Austin’s, Bojo’s and Round Table Pizza. The banking sector continued it’s retrenchment with the closing of two Wells Fargo Financial Services offices and one Wachovia branch.
The line shop vacancy rate now stands at a new record high of 22.52%. The anchor vacancy rate has dipped below the high and now stands at 13.08%. While these high vacancy rates are causing financial pressures for landlords, it is creating opportunities for new businesses as landlords aggressively compete for the few tenants looking for space.
Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno