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Tuesday, September 7, 2010 |
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| Commercial Real Estate: Only consumer confidence, cheap money can rally retail |
By Roger Yohem |
INSIDE TUCSON BUSINESS |
February 9, 2010
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The success of retail real estate depends on consumer confidence and spending.
On Jan. 26 consumer confidence hit its highest level in 18 months. The next day, the Federal Reserve bank voted to leave its short-term interest rate unchanged, at virtually zero percent, for the foreseeable future.
Taken together, increasing consumer confidence and cheap money from the government have created optimism that 2010 will be a better year for consumer spending, helping retail real estate to recover.
Greg Furrier, with Picor, said that during the fourth quarter of 2009, “Tucson saw a strong positive shift” in net absorption. A total 165,688 square feet were absorbed.
“Tenant activity appears to be increasing, a sign that 2010 will be a more productive and stable market,” he explained. As more space is rented, rates will stabilize “and may find equilibrium in the second half of 2010.”
Nancy McClure, of CB Richard Ellis, said two large retail additions to the market are positive signs of improvement. Burlington Coat Factory will make its debut at 3601 E. Broadway in El Con in a 65,000 square-foot building. Ultimate Electronics leased 34,000 square feet at 4638 N. Oracle Road.
Another sizeable lease was Sam Levitz Furniture taking over the 220,000 square-foot former American Home warehouse at 2020 W. Prince Road.
David Houge, with Tucson Realty & Trust, cited significant leases in Tucson Mall: outdoor gear and clothier REI took 15,000 square feet and the Cheesecake Factory took 10,000 square feet.
Don Ahee, office operations manager for CB Richard Ellis, said retail vacancy rates have been rising steadily since bottoming out near 7 percent in 2007. At the end of 2009, the rate was 11.9 percent.
Vacancies increased in all geographic submarkets. The southwest ended the year with highest vacancies, at 14.3 percent, followed by the northwest, at 12.2 percent.
Ahee is watching closely the spread between availability and vacancy. The available rate is 15.3 percent, a sizable 2.4 percentage points above vacant space.
“This spread indicates space that is still occupied but available for sublease. For the last 18 months, the availability rate has predicted future vacancy,” he said. “If this trend continues, we are looking at higher vacancies in the coming periods.”
Lease rate averages also have been falling for 18 months. Ahee said there have been “significant rental concessions as landlords hang onto their tenants.”
Most triple-net rates are in the range of $14 to $18 per square foot, added Houge.
Although retail real estate has “hit most of the lows, unfortunately, there likely will be some additional fallout with distressed retailer properties going back to lenders,” said Houge. “Nationally, investors see 2010 as an ideal time to start increasing portfolios. Many are geared up for acquisitions.”
But before a sustainable recovery can take place, Houge said that distressed building owners and lenders will have to realize their losses and dispose of under- performing properties.
This year will be as challenging and trend up slowly, he said. But because of tight financial markets for investors and tightening credit card policies for consumers, a full recovery could take until mid-2011.
Contact Roger Yohem at ryohem@azbiz.com or (520) 295-4254.
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