Consumer spending falls, lifting retail vacancy rates

By Buck Wargo

Published Friday, Jan. 16, 2009 | 2 a.m.

Updated Saturday, Jan. 17, 2009 | 9:26 p.m.

The national credit and housing crisis along with the recession have taken their toll on the Las Vegas retail market.

The vacancy rate increased sharply during the fourth quarter to 9.9 percent, said Patricia Nooney, managing director with CB Richard Ellis, a commercial brokerage. That’s more than double what it was in the fourth quarter of 2007.

The reason is less consumer spending has affected local retailers, Nooney said. The rising unemployment rate means more people have less money to spend.

Many local and national retailers are awaiting the results of the 2008 holiday season to determine whether they can remain in the black for the year and in business, Nooney said.

Developers, meanwhile, are having difficulty in securing financing for projects, and investors and retailers are more wary than ever of expansion, she said.

Several projects were put on hold during the fourth quarter, and few of the projects planned or under construction will open in 2009, she said.

The slowdown in retail activity has given tenants more choices and negotiating power because landlords are doing everything they can to keep existing tenants, including offering lease concessions and tenant improvements.

The average rates for retail space were $2.14 per square foot, down 6 cents from the third quarter. The east valley saw rates drop 36 cents, while the southwest valley saw rates fall 26 cents.

That contrasted with Summerlin, the northwest and west central area, where rates rose 10 to 13 cents.

Retail space under construction dropped by 20 percent from the third quarter to the fourth, Nooney said. Summerlin saw the largest drop because the 2 million-square-foot Summerlin Centre was put on hold.

The cancellations of the Clock Tower at Seven Hills and the Clock Tower at Spanish Hills amount to a loss of nearly 200,000 square feet, Nooney said.

In addition, the 1 million-square-foot City Crossing was canceled in Henderson because of bankruptcy, she said.

The amount of space planned dropped by 35 percent since the third quarter. That includes the South Square Marketplace in Summerlin and Lake Mead Village.

In 2008, 3.5 million square feet of space were completed, just 68 percent of the amount completed in 2007, Nooney said.

The southwest valley had the highest vacancy rate at 14.8 percent, while Summerlin and Nellis posted the lowest rates at 5.3 percent.

Henderson was hard hit by the turnover at several major centers, including in the Stephanie Street Power Center, the District and Galleria Commons, Nooney said.

Applied Analysis

The research firm reports that in the fourth quarter, the market expanded by 236,000 square feet to reach 50.5 million square feet in 326 anchored retail centers. The 1.9 million square feet added in 2008 was well below the 4.3 million square feet in 2007.

The demand for space in 2008 was the lowest since the firm began tracking the retail market in the mid-1990s, Applied Analysis Principal Jeremy Aguero said.

The firm put the vacancy rate at 7.4 percent in 2008’s fourth quarter, well above the 4 percent in the fourth quarter of 2007.

Waning consumer confidence, a depressed housing market and deteriorating job market cause consumers to spend less and affect the commercial real estate market, Aguero said.

The immediate future isn’t much better with more layoffs and store closures likely, he said.

More businesses won’t be renewing leases and that will put pressure on developers to drop rents, he said.

The closure of anchor stores reduces the amount of people in a center and curtails sales at the smaller businesses, Aguero said.

The lowest vacancy rate was in power centers, outdoor shopping centers with at least 250,000 square feet. Their vacancy rate was 4.6 percent.

Neighborhood shopping centers had a 10 percent vacancy rate.

Applied Analysis reported power centers had the highest rents at $2.46 per square foot. Neighborhood centers charged $2.02 per square foot on average.