Retail Rents Fall As Owners Bargain With Financially Strapped Tenants (2/10)
Feb 10, 2009 10:10 AM
But falling demand is only part of the story, says Hessam Nadji, economist and managing director of research with Marcus & Millichap. The retail sector has had a lot of new product come on line in recent years and it will continue to deliver more space in 2009.
“It’s not just a matter of a demand contraction,” Nadji says. “We did have a bit of a supply bubble as well.”
Last year, Marcus & Millichap estimates, retail completions reached 130 million square feet and will total approximately 90 million square feet this year. PPR’s estimates are more modest. It expects 78 million square feet of new retail space to come on line this year and another 24 million square feet in 2010. What’s certain is that extra supply will put continued strain on occupancies. In 2008, according to Reis, completed projects had an average vacancy rate of 50 percent, compared to no more than 30 percent during the boom years.
Faced with one of the worst years on record, landlords have been lowering rents, granting free rent periods and offering tenant improvement dollars to prevent retailers from moving out, says David Solomon, president of NAI ReStore, a Narbeth, Pa.-based retail real estate services firm. Taking those measures into account, in recent months, he says, effective rental rates have dropped between 15 percent and 20 percent, depending on the market. During a recent conversation about market conditions, the president of a large retail REIT told Solomon, “Rent? What’s rent? We are glad to get a warm body with a pulse.”
“He was half joking,” says Solomon. “But there is an element of truth to it.”
--Elaine Misonzhnik
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