Tuesday, February 5, 2013

A Good Year for Retail, But What Lies Ahead?

The fourth quarter of 2012 saw another quarter of positive performance for Southern Nevada’s retail market, the sixth quarter in a row and a sure sign that Las Vegas has some life left in it yet. While overall activity did not rise, it appears that fewer retailers are now downsizing or closing up shop, and that helped produce 117,731 square feet of positive net absorption. The vacancy rate has now decreased by 1.4 points over the past four quarters, reaching 10 percent in the fourth quarter of 2012. Asking rents have continued to slide, and there were no new completions of anchored retail this quarter.

Southern Nevada currently has 1.16 million square feet of big-box space available in the marketplace, representing a vacancy rate of 6.1 percent and at an average asking price of $0.94 psf NNN. Shop-space had a vacancy rate of 14.1 percent and asking rate of $1.41 psf NNN. While shop-space has a higher vacancy rate than big-box, the big-box’s hold about 24.6 percent of all the vacant retail space in Southern Nevada’s anchored centers. Net absorption (including vacant sublease space) in big-box space over the past quarter was 18,133 square feet. Shop space posted 291,470 square feet of net absorption over the same period. Filling big-box space could be a slow process, especially given the current trend in big-box retailing to downsize their stores in the face of “showrooming” by customers who browse in brick-and-mortal retail stores, but finalize their purchase online.

There is no denying that the retail market just finished up a productive 2012. Net absorption was positive for the year, gross absorption was up and overall vacancy is falling. Asking rents have not yet started to recover, but if demand for retail remains strong in 2013 that might change. Despite all of this positive news, there are concerns to be had about the future. Retail in Southern Nevada is overbuilt, and internet retail has the potential to put a damper on future demand for retail space even as consumer spending recovers. Much of the retail space that is now vacant was constructed at a time when making a project look good on paper trumped design considerations and, in some cases, common sense. As a result, much of the overhang of retail product will have a hard time ever attracting tenants, leaving Southern Nevada with two retail markets, one of well-located, well-designed centers commanding strong rents and boasting high occupancy, and another market of retail projects that languish on the margins. Despite these misgivings for the future, we still believe that the overall trajectory of the local retail market is positive, and will remain so in 2013 and beyond. The recovery we have been waiting for is finally here, and while it might not be stellar, it is real and appears to have legs.

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