Return to Consumer Spending will Help Commercial Retail Market

Real Estate News Utah

 

Local real estate professionals gathered Tuesday morning to hear a review and forecast of the commercial market in Utah.

 

Various real estate professionals addressed the audience during the 2010 Utah Commercial Real Estate Symposium ‘Corralling Fundamentals: The Real Estate Drive for Solutions’ held in the Hilton Ballroom. Speakers shared their take on the positives and negatives of the office, retail, industrial, investment and capital markets.

 

The retail market experienced a less-than lackluster year in 2009, Troy Hardy, retail specialist for Coldwell Banker Commercial, told the crowd at the 2010 Utah Commercial Real Estate Symposium sponsored by CCIM and NAIOP Utah.

 

Many of the projects which were scheduled for completion in 2008 and 2009, including remodels of Trolley Square, Fashion Place, Valley Fair Mall, Streets of Sugarhouse, Station Park and Traverse Mountain, have been delayed. The only project still moving forward appears to be the City Creek Center which is scheduled for completion in 2012, Hardy said.

 

According to Hardy, vacancy rates in the retail market increased from 8.2 percent in 2008 to 8.8 percent in 2009. Specifically, rates increased to 13.08 percent in anchorless centers and to 8.26 percent in regional centers. The northwest and northeast segments of Salt Lake County are near historic lows at less than 5 percent of vacancy, Hardy said.

 

Lease rates have dropped to $14.49 per square foot with certain areas of the valley maintaining stable rates, Hardy commented. Other areas, he explained, have seen asking rates reduced by up to 20 percent.

 

“Asking rates and vacancy rates are almost always inversely related,” Hardy said. “In areas where vacancy rates are low, average weighted asking rates are higher; whereas areas of volatility and higher vacancy almost always results in more competition and reduced asking rates.”

 

Lease rates have decreased the most in areas with the most new construction, specifically in the southeast and central east areas of the county, Hardy said. But the 7 to 14 percent decline does not reflect the free rent, tenant improvement concessions and other freebies offered by landlords, he said.

 

WINCO played a large role in the square footage added to the retail market in 2009 with two, 90,000-square-foot buildings, Hardy said. An additional 20,000 square feet was added to the market during the year, bringing the total to 205,200 square feet. In comparison, close to 600,000 square feet of retail space was added to the market in 2008.

 

With net absorption in 2009 at negative 150,000 square feet, the year finished off with a loss of 150,000 square feet, Hardy said.

 

“This number explains the increase in vacancy rates and foretells the rate of new construction in coming years,” Hardy said. “This is a sign of the retail market constricting and correcting itself.”

 

Hardy explained that in order to revive the retail market, consumers must return to spending money. Luckily, consumer confidence has doubled from a year ago and same-store sales have increased by 2.8 percent.

 

“This is exactly what the doctor ordered and will hopefully give many retailers the shot of confidence needed to slow store closures in 2010,” Hardy said.

In addition to consumer spending, Hardy said more lending and more credit, a residential rebound and job creation are keys to a recovery in the commercial retail industry.

 

“The coming year will mark one of progress for the Greater Salt Lake retail market,” Hardy said. “Retailers will slowly come out of hiding and ultimately, as consumers spend, residential rebounds and unemployment stabilizes, the retail segment will again become the darling of Utah commercial real estate.”