VOL. 125 | NO. 242 | Tuesday, December 14, 2010
EMPHASIS Commercial Real Estate Trends
‘Positive Signs’ Abound in Retail Market
By Sarah Baker
Perhaps more than any other commercial real estate sector, the retail market is braced for positive change in 2011.
Construction continues on outlying parcels of the Ridgeway Trace center, near Poplar Avenue and Interstate 240. The retail development also features a Target, Best Buy and Sports Authority. (Photo: Lance Murphey)
Turnaround is certainly on the minds of retailers and retail landlords, who have seen 7.5 million jobs lost since the end of 2007.
The Memphis retail market was basically unchanged in the third quarter of 2010 (July through September), a sign that recovery might be under way.
The vacancy rate dropped from 9 percent in the second quarter to 8.9 percent in the third, according to the CoStar Group Inc.’s retail report third quarter 2010.
But the Memphis market saw an overall decrease in the vacancy rate over the past four quarters. The amount of vacant sublease space has trended down as well, from 324,553 square feet in Q4 2009 to 257,259 currently.
Cary Whitehead, senior vice president of Boyle Investment Co., foresees positive absorption in 2011, as vacancy stabilizes.
“We’re seeing a lot of positive signs in retail – more leasing activity, more leases being signed, new tenants looking at coming into Memphis – all of that is excellent after a slowdown,” Whitehead said.
Net absorption for the quarter was positive at 101,589 square feet. And rental rates saw a 1.1 percent bump for the current quarter and a 6.6 percent drop from four quarters ago.
Class A and B real estate in trade areas like Germantown, East Memphis, Southaven and Olive Branch have seen greater rises in rental rates than the overall market because they have high demand from retailers.
“We’re running out of the A and B real estate in Memphis – which I consider well-located real estate that has a signalized intersection that may have some international tenants,” said Shawn Massey, partner with The Shopping Center Group LLC. “The vacancy rate for that good real estate is actually very low in Memphis and other parts of the Southeast.”
Across the market, incentives are in place to appeal to new tenants and drive occupancy. For instance, the longtime Memphis firm Loeb Properties Inc. has been periodically offering six months free rent over the past few years.
“We’ll continue to consider it on a property-to-property basis moving forward into 2011 until demand starts to pick up,” said Matt Prince, Loeb’s senior vice president of brokerage and development.
As of Sept. 30, Memphis had 29.5 million square feet of retail space in existing inventory, with 25,000 square feet of new supply for 2010, according to Colliers International’s fall 2010 retail highlights. Absorption in 2009 totaled 106,000 square feet, while 2010 absorption reached 252,087.
The price of land in the Memphis market has most likely bottomed out or will bottom out in 2011, Whitehead said. Banks that are still in the process of foreclosing on land could affect year-end values.
The largest lease signings of 2010 included New Horizon Computer Learning Center’s 28,849-square-foot lease at 4765 American Way, Goodwill’s 27,000-square-foot lease at 8017 U.S. Highway 51 N. and Babies R Us 23,500-square-foot lease at 7686 Polo Grounds Blvd.
Over the past four quarters, the shopping center vacancy rate has gone from 13.5 percent at the end of 2009’s fourth quarter, to 13.1 percent of 2010’s Q1, to 12.8 percent at Q2 and lastly 12.7 percent at Q3’s end.
As dominant regional malls and grocery-anchored neighborhood centers continue to be the strongest performers, a focus on infill will likely be a notable trend of 2011 and beyond.
“I don’t see a new major shopping center being built in 2011, but it could happen,” Whitehead said.