Mid-Atlantic Offers Hope for a Hopeless Year (2/4)
Feb 4, 2009 11:46 AM
By all accounts, 2009 is shaping up to be a brutal year for retail real estate. With massive job cuts across a multitude of industries (unemployment reached 7.2 percent in December, up from 4.9 percent a year earlier) and consumer spending down for six straight months, retailers have been closing stores, leading to lower rents and higher vacancies at malls and shopping centers. The Mid-Atlantic region, including Maryland, Virginia and Washington, D.C., is not immune from that fallout, with chains such as Linens ‘n Things, Circuit City, Tweeter and Boscov’s closing a number of stores in the area.
But President Obama's move into Washington and base realignment and closure (BRAC) plans going into effect throughout the region provide two powerful stimulants that could mean the Mid-Atlantic weathers the economic storm much better than other parts of the country. The federal government is expected to expand its job force, while BRAC will keep a steady inflow of new, high-income residents into the states. Those residents will need supporting infrastructure, including housing, schools, healthcare facilities and, most important to developers, retail.
Below, a number of real estate experts based in the Mid-Atlantic give Retail Traffic their outlook on the region. Among them: Edward Goldmeier, vice president for retail in the Baltimore office of Grubb & Ellis, a national commercial real estate services firm. He covers the area from Fredericksburg, Va. through Washington, D.C. to Maryland. Charles F. Phelps, Jr. is president of Paraclete Realty, LLC, a Millersville, Md.-based retail real estate services firm. Paraclete Realty serves Maryland, Virginia, Washington, D.C., as well as Delaware and Florida. Thomas H. Maddux is a principal with KLNB retail, a Baltimore-based commercial real estate services firm active across the region. And Catherine Timko is a principal with the Riddle Co,, a Washington, D.C.-based business and economic development consulting firm.
Retail Traffic: How is the leasing activity in the region holding up?
Phelps: There are a lot of vacancies.
Goldmeier: Generally speaking, there is a definite slowdown in the properties where we are representing the landlord. There aren’t a lot of tenants looking and the ones that are looking are value-oriented and looking for very aggressive deals.
Maddux: I think there is a combination of things going on. [There] are spaces that are being vacated through bankruptcy. We have Linens ‘n Things and Circuit City and Tweeter. Each of these tenants has several stores in the region and that creates immediate vacancy in the market. Then there are others—Boscov’s gave up three sites around Maryland. Until this downturn started, probably a year ago, there was very little vacancy in the market. And like with any other vibrant real estate cycle, there was a lot being built and a lot planned, so we will have some vacancy as the result of projects that were conceived before the downturn.
Retail Traffic: Is anyone expanding right now?
Goldmeier: We have a regional dollar store that’s looking for opportunistic situations. The whole category of [value-oriented] and dollar stores—Dollar General, Dollar Tree, Big Lots—is out there. We [also] have a number of franchise concepts that we work with and those franchisees that are well capitalized are still able to open locations.
Phelps: Grocery stores--but it’s more talk than it is action.
Timko: Forever 21 and Guess have both just signed leases in downtown D.C. There are also more regional businesses looking at the markets.
Maddux: At the national level, I think we are still waiting to see [the effects of the past holiday shopping season] on what the expansion plans will be for any of the national retailers. They are obviously going to be very cautious in 2009 and 2010. One opportunity that I think is real today is for local and regional tenants to have access to retail spaces that they previously couldn’t afford. Especially with small shop leases in the coming year, that’s where we see our opportunity to maintain or fill vacancies in existing centers.
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