Retail vacancies pushed upward after three consecutive quarters of decline. The vacancy rate jumped to 10.4 percent during the quarter, an increase of 0.2 percentage points compared to the previous quarter (Q4 2010), but 0.3 percentage points less than the same period in the prior year (Q1 2010). Average asking rents continued their downward trend, slipping to $1.53 per square foot per month, or down 11.0 percent from the $1.72 reported one year ago. Prices are off 30.5 percent from the peak reported in early-2008 and at a level not seen since late-2004.
While no new space completed construction during the quarter, the retail market witnessed a total of 98,300 square feet of negative net absorption as more retail tenants moved out of space than moved in. Downward pressure on pricing is expected to continue in the near term, especially in community and neighborhood centers where vacancies remain elevated. Further pricing adjustments will persist as lenders repossess underperforming retail centers.
By the end of the first quarter of 2011, the retail market reported 51.2 million square feet of inventory. Only a single project totaling 225,000 square feet in the west submarket remains actively under construction. Plans for 4.6 million square feet remain on the drawing board. Planned space is inclusive of 1.3 million square feet of space that stopped or delayed development due to recent economic conditions and is not likely to resume in the near term.
The retail market will likely remain somewhat volatile over the next 12 months, as the sector seeks out a new equilibrium. That said, landlords will continue to operate in a difficult financial environment as average asking lease rates have declined nearly a third over the last three years.
Southern Nevada analysis and statistics compiled by Applied Analysis.
The Reno/Sparks economic climate is showing more consistent signs of improvement, perhaps indicating that the retail vacancy rates may have peaked. The area had a positive net absorption during the fourth quarter of 19,446 square feet, the third consecutive quarter of positive net absorption. Although the net absorption number is modest, it is moving in the right direction and staying positive.
The net absorption during the quarter can be attributed to multiple smaller leases and one anchor lease. During the quarter, there were 43 businesses moving into shopping centers consisting of 116,086 square feet while during the same period, 38 businesses moved out consisting of 97,245 square feet.
Only one anchor tenant leased space this quarter. Total Wine opened a 28,000 square feet store in the South Virginia Commons. Other new tenants that opened included Famous Dave’s BBQ at Kietzke and McCarran and Eagle Fitness in the Sharon Square. Tenants moving out included Blockbuster Video in the Northtown Marketplace and Cheese Burger Island in the Parkside Center.
The line shop vacancy rate is hovering around the record at 22.05 percent. The anchor vacancy rate is now just shy of the record at 14.82 percent, with the overall vacancy rate at 17.81 percent. While the continuation of 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 Reno.