The anchor-centered retail market recorded 196,600 square feet of positive net absorption during the fourth quarter of 2011, pushing the vacancy rate downward to 10.6 percent. While vacancies edged down by 0.3 percentage points from the third quarter of 2011, the overall vacancy rate remains higher than the 10.3 percent reported one year ago (Q4 2010). As the retail vacancy rate slipped from its all-time high, it is worth noting vacancies remain 6.5 percentage points higher, or more than double, from when the last recession began. To put the amount of excess capacity in the market into perspective, an additional 3.3 million square feet of positive absorption would be required to bring the vacancy rate back to a pre-recession level of 4.1 percent.
Elevated vacancies continue to moderate pricing with average asking rents slipping to $1.51 per square foot per month in the fourth quarter. Pricing reflects a 3.5-percent decline from the $1.56 per square foot reported during the same quarter of the prior year; rents were off slightly from the third quarter of 2011 which stood at $1.52 per square foot. The average asking rent among all product types across the valley has lingered within a relatively narrow range over the last 12 months. While this may suggest average pricing is approaching its proverbial bottom, asset value resetting taking place may result in future price deterioration.
During the quarter, approximately 35,000 square feet was added to the market. A few projects are actively under construction including two WinCo Foods, and a second-phase addition to Tivoli Village at Queensridge. Plans for 3.3 million square feet remain on the drawing board.
Although economic signals suggest an economic recovery is underway, the debt overhang – primarily caused by the housing market – is likely to linger over consumers for years to come.
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 fourth quarter of 39,501 square feet, the sixth consecutive quarter of positive net absorption. Although the net absorption number remains 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 50 businesses moving into shopping centers consisting of 149,242 square feet while during the same period, 31 businesses moved out consisting of 109,781 square feet. The number of new businesses moving in is good news as it is a reversal from the previous two quarters where the number of businesses moving out exceeded those moving in.
The one larger tenant that leased space this quarter was the relocation and re-branding of Factory 2 U moving out of the McCarran Plaza and opening in the Silver State Shopping Center as Fallas Paredes. Other new tenants that opened included Ijji Sushi at Redfield Promenade, Marinello in Smithridge Plaza and Discount Tire at Legends. During the quarter sizable tenants that vacated their space included Ben Franklin Crafts in the Greenbrae Shopping Center, Rack and Pinz in the Legends and Tuesday Morning in the Sierra Marketplace.
The line shop vacancy rate is hovering just below the record at 21.99%. The anchor vacancy rate is now just shy of the record at 13.91%, with the overall vacancy rate at 17.25%. 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.