Retail sector to suffer ‘next several quarters’

Ulf Buchholz

Kohl’s at Grand Canyon Drive and Flamingo Road is one of three Kohl’s stores that opened in September in Southern Nevada.

By Brian Wargo (contact), In Business reporter

Fri, Oct 30, 2009 (3 a.m.)

Analysts are predicting more bad news for the retail real estate business as weak consumer confidence and a sagging job market will hurt development and push up vacancy rates.

Restrepo Consulting Group reported that shopping centers without a major anchor have been battered during the recession, and that is now spreading to larger centers. Merchants vacated nearly 350,000 square feet of space in anchored centers in the third quarter.

Restrepo Consulting said 3.8 million square feet of the 42.8 million square feet in anchored retail centers were vacant at the end of the third quarter. That translates to 8.9 percent, well above the 5.4 percent vacancy rate at the end of 2008’s third quarter.

“Until we see the job market improve for at least six months, consumers pay off more debt, rebuild savings and retirement accounts and the credit markets thaw, demand for retail space will continue to soften and vacancies to rise,” Restrepo Consulting Principal John Restrepo said.

CB Richard Ellis said retail vacancy rates have increased for 11 consecutive quarters, but some bright spots exist.

Several low-price leaders such as Wal-Mart and dollar stores are thriving and even expanding, said Bob Miller, a broker with CB Richard Ellis.

In the third quarter, Target opened a store on Decatur Boulevard and Las Vegas Beltway and has opened a store in Henderson. Kohl’s recently opened three stores in the valley.

“These large national retail chains have been the beneficiaries of the deeply discounted lease rates and concessions landlords are currently offering … to keep spaces filled,” Miller said.

Small retailers often can’t take advantage of the tenant-friendly market because they are unable to sign long-term leases because of economic uncertainties, Miller said.

Applied Analysis reported that more than 800,000 square feet are being built and that rents requested by developers fell in the third quarter.

The firm said the average rent was $1.95 per square foot, down from $2.06 in the second quarter.

Applied Analysis Principal Brian Gordon said it’s clear to him that the lack of consumer spending, construction activity and confidence means its will be a rough ride for the region well into 2010.

“Retailers are on the front lines as residents and businesses have shifted their mind-set and monitor every dollar they spend,” Gordon said. “This trend is expected to continue, translating into relatively weak demand for commercial retail space for the next several quarters.”

Applied Analysis reported the highest vacancy rate was neighborhood shopping centers at 11.9 percent.

Restrepo said 700,000 square feet of planned projects aren’t likely to be built because lenders are hesitant to finance development.