Vacancies among anchored-retail centers move upward as economic uncertainty continues to impact retailers. The market recorded 223,400 square feet of negative net absorption during the third quarter of 2011, pushing the vacancy rate up to 10.8 percent, an increase of 0.4 percentage points compared to the previous quarter (Q2 2011) and slightly ahead of the 10.7 percent vacancy rate reported one year ago (Q3 2010).
A pullback in average asking rents has been ongoing since the downturn began more than three years ago. During the latest quarter, rents fell to $1.52 per square foot per month, or 5 percent below the $1.60 reported during the same quarter of the prior year. With the vacancy rate remaining above 10 percent for more than two years and few signs that it will improve significantly in the near term, recession-level pricing is expected to continue to impact the sector and the nearly 5.6 million square feet currently available.
Although the retail sector continues to feel the effects of a correction, a handful of projects are actively under construction including two WinCo Foods, and a second-phase addition to a Target-anchored neighborhood center being built for pre-leased tenants. Plans for 4 million square feet remain on the drawing board, consisting primarily of stalled projects and future phases of existing centers.
The closing of Borders and several other large spaces put a black eye on the retail sector’s third quarter performance, but positive signs remain. Several former Borders locations are in power centers performing above average and are likely to be absorbed as more value-oriented retailers seek to back fill vacancies. Additionally, Fry’s Electronics’ purchase of the former Great Indoors inside Boca Park should spark a bit of confidence back into the sector, as retailers continue to position themselves for when economic opportunity presents itself.
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 positive net absorption during the third quarter of 41,202 sf, the fifth 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 three larger leases. During the quarter, there were 21 businesses moving into shopping centers consisting of 141,624 sf. During the same period, 23 businesses moved out consisting of 102,242 sf. The disturbing trend consistently being seen is more individual businesses moving out of shopping centers than those moving in.
Three larger tenants leased space this quarter. Ross opened in the Silver State Shopping Center, America’s Furniture 4 Less opened in the Sak-n-Save center on Plumb Lane and Sierra Trading Post relocated to the Del Monte Plaza. During the quarter, Borders vacated their space in the Redfield Promenade. Other new tenants that opened included Damonte Ranch Animal Hospital in the Damonte Ranch Town Center, Genghis Grill in the Southtowne Crossing and Dickie’s BBQ in the McQeen Crossing. Tenants moving out included Francis’ Bistro in the Caughlin Ranch Shopping Center, Scruples in the Lakeside Plaza and Cadillac Ranch in the Legends at the Sparks Marina.
The line shop vacancy rate is hovering around the record at 22.06 percent. The anchor vacancy rate is now just shy of the record at 14.2 percent, with the overall vacancy rate at 17.46 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.