Retailers eager to enter market instead go elsewhere
By Garrick Brown, director of research, Cassidy Turley
For all of the talk of the dreaded impact of e-commerce, the North Bay’s shopping center marketplace boasted a vacancy rate of just 4.5 percent heading into 2014.
This isn’t the lowest level of vacancy we have ever recorded here. The market achieved that distinction in the fourth quarter of 2012, when numbers came in at just 4.3 percent. Yet, the current level of occupancy remains significantly above both historic and national norms. Remarkably, this is despite the fact that the average age of shopping center space in the North Bay is older than 40.
This is great news for landlords. We have seen asking rents jump significantly because of it. The new rental-rate norm for quality smaller shop space is $60 annually per square foot, or $5 a month, up from the $30-a-year range, or $2.50 a month, just a couple of years ago.
But the problem is that vacancy is now so low as to prevent economic growth. One could look at the fact that vacancy levels have increased from 4.3 percent to 4.5 percent between 2012 and now then wonder if that situation wasn’t finally improving.
But keep in mind that during this period of time, the delivery of new shopping center projects — mostly in Petaluma — added 455,000 square feet of new shopping center space. Normally with deliveries that large, one would expect a lease-up time of anywhere from six months to one year. Yet nearly all of these projects were above 90 percent occupancy within a couple of months of delivery.
There is currently 856,000 square feet of available space in the market. Yet nearly all of this either situated in the region’s oldest class C centers or is space with challenges within otherwise more desirable class B or class A projects.
Big retailers look elsewhere
We know of more than a dozen major retailers that would like to grow in the North Bay but have been unable to find quality space. Normally within the retail paradigm, if a retailer can’t find available class A space, it will start looking locally for possible class B-plus sites that might work.
Here’s the challenge of today’s marketplace: Nearly all the growth being driven by national retail chains, and they tend to move on to find quality class A space in another market if they can’t find it in a market of choice.
Consequently, they have been spurring strong growth over the past year in markets such as Denver, Las Vegas, Phoenix and Salt Lake City. That growth and those jobs could have landed here, were quality space available.
This trend is only going to continue in 2014 and beyond until local municipal governments become more friendly to the concept of new development, better shopping centers and more jobs.
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