Retailers Still Struggling
The national retail sector is reporting record numbers…record low numbers that is-
According to CoStar, the nations retail sector posted a negative quarterly net absorption for the first time, in addition the highest vacancy rate this century. When the vacancy rates rise, typically the amount of marketing time rises as well. In 2006, costar reports that the average space spent 174 days on the market (that includes the time it was marketed during construction). According to their reports, today one can expect their retail space spending 370 days on the market before occupancy.
With some of the big boxes closing their doors, this has caused vacancy rates in their centers to increase substantially as well. Jay Spivey, Sr. Director of Research & Analytics for CoStar reported that of those centers who once housed Circuit City, the vacancy rates have increased up to 22%, and the average rental asking rates have dropped from $25 to $21 per s.f. In addition, there are some tenants who have a co-tenant agreement which allows them to vacate their space with no recourse if one of the big box companies move out. Verizon Wireless is a co-tenant in 192 of 388 Circuit City shopping centers.
The price for St. George Retail is well below the national average, and I project will stay low for the next few years. Vacancy rates are just under 10.5% and will probably increase a little more before all of this is said and done. Average days on the market will inevitably rise and force landlords to continue to drop their lease rates.
Many landlords are getting foreclosed on, or will be shortly. The income of their retail centers no longer cover the debt service, thus causing landlords to default on their property.
What does this mean? As the banks take possession they must sell the centers at an extremely discounted rate. The new landlords can then reduce their lease prices which will drive down the lease rates. As the lease rates drop, this will cause other landlords to lose their property because they cannot compete with the lower lease prices of the former bank owned centers, and the process repeats.
This is cycle will continue probably for the next 2-3 years.
The good news? Retailers will finally be able to afford to do business and even expand as landlords compete in lease prices. Retailers will be able to charge less for their goods and services, and the economy will THEN be able to start taking shape again.
