National retail sales have been improving throughout 2011, and sales in Clark County are in step with this trend. With improving sales comes a better environment for owners and investors in retail shopping centers and properties in Clark County. At the end of the third quarter of 2011, the retail vacancy rate in the county stood at 8.20 percent – the lowest rate since the first quarter of 2009, according to NAI Norris, Beggs and Simpson’s reports. The vacancy rate was 8.20 percent during the first quarter, as well, but the closure of Borders Books at Mill Plain Plaza pushed vacancy up in the second quarter.
One market segment that has seen some activity in the past year is grocery stores, since grocery sales have grown during the recession as people dined out less and cooked in more. With little new construction in the previous several years, Chuck’s Produce opened in late 2010 on Mill Plain and the first New Seasons Market north of the Columbia River opened in November. And all three Target stores in the county were remodeled to create expanded grocery sections. The county also has seen the opening of a second Costco store on 192nd Avenue and adjacent retail shop space which is experiencing good leasing activity.
The recession has created strain on retail property owners for the past two years. As retailers’ sales declined, stores closed, pushing vacancy up and creating greater competition for tenants. New business startups have dramatically declined because aspiring store owners have not had access to home equity, the historic source of business funds. Landlords have grown weary of current tenants asking for reduced rents or “blend and extend” lease revisions. But landlords have been motivated to keep current tenants, so providing the tenant could substantiate their claims of lower sales, many landlords reluctantly revised rents to lower levels. If the landlord wants to retain the tenant badly enough, the rent reduction may come with an extended lease term in an effort to secure a quality tenant for a longer period. Tenants benefit from this arrangement by locking in lower lease rates
and assuring themselves of the right to remain at their store location longer.
Lower lease rates have allowed tenants to take advantage of the current leasing market by relocating to retail properties they could not previously afford, and sometimes even expanding. Lease rates have been pushed down in a dramatic way since the beginning of the recession. A CoStar report shows that the average retail lease rate in mid-2008 was just under $23.00 per square foot per year. Today, the average is 20 percent lower at $18.42. The lease rate has finally started to stabilize and actually increased very slightly at mid-year. If retail sales figures continue to improve, even slightly, consumer confidence will lead to more spending and a stronger retail market.
Landlords who feel they have bled enough during the past three years are ready to see higher rates. Though it is still a tenant’s market for the time being, with new construction bringing less than 50,000 square feet of retail space to the market this year, landlords could soon find the pendulum swinging in their direction. Tenants who have been considering relocations or expansion would be well advised to consider making moves by the middle
The economy should continue its gradual expansion in 2012, with the highest likelihood of a healthy retail market occurring again in 2013 or 2014. Retail developers are anxious to see improvement and have projects in their pipelines which will wait until the right time. As vacant retail space is absorbed, retail lease rates will again push upward, creating a profitable development environment.
Pam Lindloff is an Associate Vice President in NAI Norris, Beggs & Simpson’s Vancouver office. She specializes in retail leasing and sales, and can be reached at email@example.com.