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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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July 16, 2007 12:01 AM ET
AP
EVERYTHING MUST GO Increased competition from a flood of new centers like this one has pushed vacancies to a four-year high.
The vacancy rate at shopping centers with a big-box retailer or a supermarket as anchor tenant rose to 7.3% in the second quarter, up a tick from the first quarter and a rate not seen since the third quarter of 2003, according to data released last week by Reis Inc., a commercial real estate market research firm. The vacancy rate was 6.9% in the second quarter a year ago. The rising vacancy rate means retailers have more leverage with landlords when trying to negotiate a lease, a change from the steady march upward of rental rates seen over the past few years. Both asking rents and effective rents—what a tenant pays after concessions from the landlord—rose a slim 0.8% in the second quarter after rising 0.9% in the first, Reis reported. “The middling results for the retail sector may reflect concern regarding soft consumer spending growth for the latter half of the year in spite of a tight labor market,” said Sam Chandan, chief economist for Reis. But the National Retail Federation is projecting a healthy gain on sales for the year of 4.8%, although that’s down from the 6.3% rise of 2006. But again, results can be spotty. For example, in June Macy’s department stores reported same-store sales down 2.7% year over year, while Wal-Mart showed a gain of 2.4% on the same basis. Michael Niemira, chief economist and director of research for the International Council of Shopping Centers, an owners group, said he tracks a different set of data than Reis, and he thinks the rise in vacancies is a cyclical change due to a softness in consumer spending and perhaps some chains slowing their expansions. “But at this point I don’t think there’s a huge concern,” he said. “Maybe some of the smaller owners will have to be more flexible.” For their part, many retailers are loathe to discuss the status of the leasing environment out of concern that it will tip their hand in lease negotiations. Rachel McLennan, spokeswoman for Petco Animal Supplies had a typical response when contacted by Financial Week. “As a private company and one that deals in a very competitive real estate market,” she said, “it would not be in our best interest to provide details that may negatively impact our negotiating ability with potential landlords.” Weakening consumer confidence and increasing household debt costs from credit cards, mortgages and home equity loans are likely to contribute to the expected crimp in consumer spending in coming quarters. So retailers are already preparing for that by cutting their employee rolls. Retail employment has declined in two of the last three months, and the government reported recently that the preliminary May-to-June change in retail trade employment was a loss of 24,000 jobs. “Softness in demand for space and the larger count of construction projects scheduled for completion in the third and fourth quarters” are the major factors driving his outlook for higher vacancies over the balance of the year, Mr. Chandan said. Reis reported that it expects the national vacancy rate to reach 7.5% at year’s end, vs. 7.1% at the end of 2006 and 6.8% at the end of 2005. Landlords’ average asking rate for store rents nationally is expected to rise by 3.8% in 2007, about the same as last year. Low-double-digit vacancy rates are common in many Deep South and Midwestern cities. In Ohio, Columbus and Cincinnati both have vacancy rates of about 13%, for example. And that means landlords in those cities have to offer more concessions to lure tenants. On the flip side, some urban areas of California are seeing virtually full occupancy, with vacancy rates below 3%. Brian McDonald, a CB Richard Ellis vice president in Ontario, Calif., said rates on new construction in Southern California are at historic highs, up 50% to 75% in the past three to four years, but that’s not likely to hold, as there is a flood of new construction in the pipeline. Joseph French, national director of retail for Sperry Van Ness, a commercial real estate firm said he thinks the retail market is robust in most major urban markets nationally. FW
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