July 14, 2009
Vacancies, Concessions Rise in Retail
GlobeSt.
By Amy Wolff Sorter
PHOENIX-The area’s vacancy rate in retail bounded to 10.5% during Q2 2009, which was a marked increase from the 6.7% vacancy a year ago. The second quarter was the ninth consecutive quarter in which retail vacancy has increased in the area.
Furthermore, no one is really surprised at how it all has turned out. “Nationally, from a retail standpoint, we’re at 11% vacancy,” explains Rick Murphy senior vice president with CB Richard Ellis’ Phoenix office. “It’s believed that we’ll mirror the national average, and probably go above it.”
CB Richard Ellis’ second quarter statistics also point to a virtual standstill in new construction, with 808,461 square feet of retail product coming on line, compared to 2.1 million square feet that went live last year. There is still 2.5 million square feet of retail space in the pipeline. Given the space coming online, no one’s in a hurry to break ground on more.
The reason behind the vacancy, unsurprisingly, is the economy. SRS Real Estate Partners’ senior vice president Ed Beeh tells GlobeSt.com tenants are still continuing to go out of business or go into bankruptcy, which also involves closures. There are the nationals such as Circuit City and Linens n’ Things. Then there are the local companies such as Bashas’, which just announced its own Chapter 11 reorganization.
Nor does Beeh see any downward trend any time soon. But on the slightly optimistic side, infill site once unavailable are freeing up as some retail businesses pull back and shut down. Additionally, “we’re not in freefall any more,” Beeh remarks. “We’re not in the other direction yet, though.”
The vacancy increase means concessions. Murphy and Beeh say landlords are becoming more aggressive when it comes to retaining tenants, as well as getting new tenants. “Almost every tenant is going to ask for rent reductions these days,” Beeh adds. “It’s important to qualify who really needs it.” But don’t be hard-nosed about it either. “Some tenants draw others to the center,” Beeh says. “If you lose them because of stubbornness, you’re likely to start a chain reaction.”
Meanwhile, tenants need to watch their backs, too. Murphy suggests tenants not be shy or careful if surviving the recession means having to cut back and close unprofitable stores. Efficient businesses, he points out, are the ones who will hang on and benefit from the turnaround.
As for those tenants signing new leases, Beeh suggests due diligence be done not only on the landlord but the other tenants. “Know what you’re getting into,” he advises. “The last thing you want to do is sign a lease for a center, then find out that it’s going to the bank or the lead tenants is about to leave.”