Retail vacancies moved downward to a level not seen in more than two years. The market recorded 369,700 square feet of positive net absorption during the second quarter of 2011, pushing the vacancy rate down to 10.1 percent, a decline of almost 0.4 percentage points compared to the previous quarter (Q1 2011) and down nearly 0.7 percentage points in the same period of the prior year (Q2 2010). It is worth noting that nearly half of the positive absorption during the quarter was sourced to the opening of Tivoli Village, where the majority of the 225,000-square-foot first phase was pre-leased.
Average asking rents have fallen for more than three years, a trend that continued during the second quarter as they slid to $1.51 per square foot per month, down 8.9 percent from the $1.65 reported one year ago. Although the vacancy rate has fallen from its 10.8-percent peak reached one year ago, downward pressure on pricing is expected to continue in the near term, as approximately 5.2 million square feet remain vacant. Average rents remain nearly 32 percent below peak levels experienced in the first quarter of 2008.
By the end of the second quarter of 2011, the retail market reported 51.4 million square feet of inventory. Two projects in the southeast submarket, which includes the City of Henderson, are actively under construction. Plans for 4.0 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 market’s ability to bring vacancy rates back in line with long-run historical averages over the next 12 to 24 months is highly suspect. However, today’s operating environment will be the basis from which future comparisons will be measured. Many landlords will continue to operate as efficiently as possible as top-line revenues remains under pressure.
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 occupancy rates may be stabilizing, albeit at or near historically low levels. The area had a slight positive net absorption during the second quarter of 541 square feet, the fourth 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 larger lease. During the quarter, there were 30 businesses moving into shopping centers consisting of 72,308 square feet while during the same period, 39 businesses moved out consisting of 72,847 square feet. The trend is that is consistently being seen is more individual businesses moving out of shopping centers than moving in.
There was only one larger tenant leased space this quarter. Planet Fitness opened an 18,559 square foot store in the Silver State Shopping Center in Sparks. Other new tenants that opened included Fitness for $10 and Jack’s Café at the Longley West Shopping Center and Soccer City in Shoppers Square. Tenants moving out included McHenry’s Pub and Grill and Canyon Creek Grill and Bar in the Sparks Crossing, Reno Iglasses in the Meadowood Court, Payless Shoes in the South Towne Crossing, and Sundance Bookstore’s relocation out of the Keystone Square into a historic house in downtown Reno. .
The line shop vacancy rate is hovering around the record at 21.99%. The anchor vacancy rate is now just shy of the record at 14.82%, with the overall vacancy rate at 17.78%. 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.