The statewide retail market appears poised for a comeback – nothing dramatic, mind you, but a comeback nonetheless — and at this point Nevadans are grateful for just about any ray of light.
“Retail is doing better,” reports Nick Hannon, Senior Vice President for Territory, Inc. in Las Vegas, one of Nevada’s leading developers of open-air retail shopping centers. “Retail is a unique kind of real estate. What makes it different from anything else is that it’s about how the individual tenants are selling – and people’s wallets are beginning to loosen up in Las Vegas.”
Among the indicators, he explains, are reports from 200 tenants representing three million square feet around the Valley. “We’ve watched the trend line of their monthly sales.” While seasonal adjustments must be made and differences in product types must be considered, all in all, he says, “we’ve seen about four or five months of a direct trend line up — some of them up a lot, some of them up a little. Virtually no one we have is down.”
There is no question, Hannon says, that “Nevada has been hit hard. The last two years have been tough. There are people who are watching their dollars.” That said, he adds, “We’ve done more leases on our vacant space in the last four months than we did in the prior two years.”
Reno, Sparks and Carson City “are stabilizing,” according to Kelly Bland, Senior Vice President of Retail and a principle in NAI Alliance in Reno, a full-service commercial real estate company dealing in office, industrial, retail, land, multi-family and investment brokerage and commercial property management. “We have been seeing a little bit more activity as far as inquiries starting in February of this year.” Contributing to that stability has been the fact that the number of businesses going under has slowed. “Lease rates have dropped, and that has made it easier for people who were looking to go into business to afford to do so.”
“I think there are a couple of things happening,” suggests Kit Graski, Senior Vice President for Voit Real Estate Service in Las Vegas. “One is the vacancy rate is staying steady at just over 10 percent, and it will probably hang there for a period of time. What we are noticing is that some of the retailers are pepping up. People are either happy that they made it through the worst periods of time – ‘Gosh, maybe we should open another store’ — or some of the people are out of a job are opening a business to create a job.”
A second possibility according to Graski: “Maybe some of the regional or national players whose stocks have done pretty well have come back, haven’t spent any money really, and are thinking, ‘Hmm, we ought to look back at Las Vegas it has been down and out. So why not get in the ballgame when it’s cheap?’ Or it‘s just simply a push by the stock market saying, ‘Hey, your stock is up, you need to spend some money, go do some stores.’”
“For us the retail market has been up, consistently up, for over a year,” says Larry Hunt, regional general manager for Bayer Properties’ The Summit in Reno-Lake Tahoe. “I think the shoppers are making more careful decisions about their purchases. They’re pre-planning the items they buy, and for a center destination like the Summit that’s an advantage.”
Almost half The Summit’s stores are destination locations, he explains. “These are the only location where you can find those stores in Northern Nevada, so people will make the trip to purchase what they perceive as unique items.” That should, he adds, continue to be the case well into 2012.
The retail market is still showing signs of volatility, according to Jake Joyce, Project Manager for Applied Analysis in Las Vegas, a business advisory services firm, as the vacancy rate in Southern Nevada rose to 10.4 percent in the first quarter. “More alarming is that average asking lease rates continue to slide downward, now at $1.53 per square foot per month.” While the declines seem to be slowing, asking rents are now off 30.5 percent since their peak of $2.20 witnessed during early 2008.”
On a bright note, Joyce continues, the retail sector has very little” left in under-construction projects, which will allow vacant second-generation space to be absorbed when demand returns. The only project actively under construction is the 225,000-sq.-ft. inside Tivoli Village in the west submarket. A soft opening occurred in early May with a few stores opening. While the majority of space is already pre-leased, not all of it is current available for delivery. Work on tenant improvements is set to continue throughout the quarter.
Joyce calls it important to note that the vacancy rate has hovered in the 10 percent range for nearly two years. “It peaked at 10.7 percent in the first quarter of 2010 and was even at 10.2 percent at the end of 2010.”
For comparison purposes, the office and industrial markets have witnessed much worse over the course of the recession. The office market vacancy rate has risen from 13.5 to 24.0 percent since the recession started in late 2007. The industrial market vacancy rate has risen from 6.6 to 17.9 percent over the same period. Both markets have shown very little demand for space, and both are more prone to the depth of the recession.
“A lot of the vacant office and industrial space was based on the growth in our economy which has come to a standstill,” adds Joyce. “We’re not building many residences or commercial space; industrial space is not being used to store building products and offices aren’t occupied by the real estate industry like they once were. Our economy that was built on growth now has to reinvent itself using what it has today.”
Taxable retail sales have shown improvement, Joyce points out, indicating consumers are showing signs of spending once again. Fiscal-year-to-date, taxable sales (July 2010 through February 2011) showed a 2.9 percent increase compared to the same period last year, rising from $18.2 billion to $18.7 billion. Sectors showing significant improvements over the last year include electronics and appliance stores (+15.7 percent); clothing and clothing accessories stores (+12.9 percent); and sporting goods, hobby, book, and music stores (+5.6 percent).
Mary Lau, President of the Retail Association of Nevada, noted in a statement that consistent with the group’s outlook for 2011, “it appears Nevada is on track to realize a gain in taxable sales of around 4.0 percent this year, matching the national expectation. While the leisure and hospitality sector did well in January, it will be encouraging if we see continued improvement, as the health of the tourism industry tends to have a strong effect on retail sales around the state.”
Not much, unfortunately, appears to be in the pipeline. While some properties are “moving into the hands of developers off the books of banks,” Hannon says, “I don’t know that anybody is in the ground except Tivoli, and that’s an offshore cash fund. But other than them, I don’t know of anybody. You might get a fast-food joint going up here and there, but I don’t see a shopping center going up for a while.” Through 2012, he sees only incremental, steady, slow growth.
Graski, like the others, is not seeing any new retail developments, “and we’re probably not going to see that for some period of time. It can be quite a few years before we see any real retail development because there’s just no push when you’ve got over 10 percent retail vacancy.” There is also a surplus of supermarket-anchored and power centers. “So I don’t see anybody pulling the trigger on anything new. There are probably over 30 big boxes on the market right now, and there is still some inventory to work through. And again, you have to have financing, too.”
Cause for Optimism
Still, if the economic downturn has taught American business anything it’s that things are getting better when they’re no longer getting worse.
NAI expects continued stabilization through the first half of 2011, and hopes for an increase in net absorption for the entire year. There is, at present, “very little in the pipeline right now. There is one Super Walmart under construction in Lemmon Valley, and there will be a little bit of activity at the Legends that will continue. There is a Lowe’s and a TJ Maxx that will be going out in that direction, (but) that is generally it. We’re not getting any brand new shopping centers going into the market place.
“Good things are happening,” Summit’s Hunt concludes. “We have some great new stores coming, and the selection continues to improve at the center. That’s been one of the major reasons people are coming here.”
What could derail that growth? “Life is full of surprises and I don’t’ have a crystal ball,” Hannon admits. “But to hear people talk about macro-economics, the second dip in the housing market or the jobs not being created, whatever they want to look at can make you wonder.” On a more positive note, he continues, a lot of the weakness has been culled from the economy, both in providers and consumers.
“For example,” Hannon explains, “let’s say there were 20 restaurants in your neighborhood three years ago. Today there are 14. The strong survive. And so those same 14 will prosper because they’re not competing with 20, and it’s the same thing with real estate agents. Every field has been culled down to a leaner machine to survive. And those who are survivors are doing okay.”
One final reason for optimism: Help for beleaguered retailers statewide might also be coming in the form of hoped-for legislation that would require e-commerce sites to start collecting state taxes on sales within Nevada.
The campaign to level the retail playing field by forcing e-commerce sites like Amazon.com and others to collect sales tax is being handled by the Nevada Retail Association and the Nevada Resort Association. Legislators may soon start considering amendments to pending legislation. In a prepared statement, the retail groups estimated lost revenue to competitors in cyberspace might be costing the state as many as 900 retail jobs.
Bryan Wachter, president of the group, summed up the situation as “a tax fairness issue.” The group presented statistics from the Nevada Taxation Department that indicate nearly $300 million a year may be spent on online purchases across the state, which translates to approximately $16 million in state sales taxes yearly.
A break like that would help retailers across the state, and provide one more welcome sign that the light at the end of the tunnel – at long last – is getting closer.