Retail vacancies declined for the third consecutive quarter, as second-generation space in anchored retail centers was absorbed amid a decline in average asking rents. The vacancy rate fell to 10.2 percent during the quarter, a decline of 0.3 percentage points compared to the previous quarter (Q3 2010) and the same period over the prior year (Q4 2009). During the fourth quarter, average asking rents fell to $1.56 per square foot per month, or down 15.0 percent from the $1.84 reported one year ago. Prices are off 28.9 percent from the peak reported in early 2008 and at a level not seen since early 2005.
While no new space completed construction during the quarter, the retail market witnessed a total of 165,400 square feet of positive net absorption as more retail tenants moved into space than moved out. During the entirety of 2010, a modest 164,600 square feet completed construction while the market witnessed 306,700 square feet of positive absorption during the same timeframe. With an elevated vacancy rate for more than two years, and nearly 2.5 million square feet of excess inventory on the market, it is expected that downward pressure on pricing will continue.
By the end of the fourth quarter of 2010, the retail market reported 51.2 million square feet of inventory. Projects that remain actively under construction total approximately 300,000 square feet while plans for 4.4 million square feet remain on the drawing board. Planned space is inclusive of 1.2 million square feet of space that stopped or delayed development due to the current economic environment and is not likely to resume in the near term.
The reported decline in the vacancy rate is warmly welcomed. However, it is likely that the vacant space, at more than 5.2 million square feet, will take a significant period to draw down as unemployment remains elevated.
Southern Nevada analysis and statistics compiled by Applied Analysis.
The Reno/Sparks economic climate is showing mixed signs of improvement, perhaps indicating that the retail vacancy rates may be near the peak. The area had a positive net absorption during the fourth quarter of 60,265 square feet with a net absorption of 71,817 square feet for the year.
Most of the net absorption during the quarter can be attributed to one large lease from Wal-Mart which occupied just over 184,000 square feet on Glendale Avenue just east of US 395. This new store was a relocation/expansion from their 125,000 square feet store that they vacated at US 395 and North McCarran. Without that one lease, the market would have seen net absorption relatively flat.
During the fourth quarter, there were 33 businesses moving into shopping centers consisting of 271,891 square feet while during the same period, 33 businesses moved out consisting of 212,826 square feet. The market will continue to struggle to post consistently positive net absorption until the ratio of move ins to move outs becomes positive.
Some of the new businesses that opened during the quarter include Tires Plus in the Sparks Galleria, Pier 1 in the Dal Monte Plaza and Auto Zone in the Canyon Center. Tenants moving out included Sak’s 5th in the Legends and Chevy’s in Redfield Promenade.
The line shop vacancy rate is just off the record and now stands at 21.72%. The anchor vacancy rate is now at a record high of 15.19%, with the overall vacancy rate at 17.88%. While these high vacancy rates are causing financial pressures for some landlords, it is creating opportunities for new businesses as landlords aggressively compete for the few tenants looking for space.
Northern Nevada analysis and statistics compiled by NAI Alliance.