The News: That Empty Feeling

A dramatic drop in completed development will not be enough to offset store closures that will push up retail vacancy to 10.2 percent nationwide this year, according to a new Marcus & Millichap Real Estate Investment Services Inc. projectionAlthough new inventory will decline to 90 million square feet in 2008, a 40 million-square-foot drop, the shrinking volume of new product is failing to offset the increasing momentum of store closings. Marcus & Millichap anticipates vacancy to jump 170 basis points this year as a result. Bankruptcies and store closings should characterize 2009, picking up where 2008 left off. When final figures are in, store closings for 2008 may total 6,500, including an estimated 1,900 in the fourth quarter. A 2 percent drop in retail sales during the holiday season capped off a dismal year and threatens to accelerate the pace of store closings.Moreover, the recession is beginning to reach a widening variety of retailers. Closings are expanding beyond the home-related retailers that first felt the pinch. A pullback on consumer spending helped cause those apparel and jewelry stores to account for 43 percent of all store closings in the third quarter. The Marcus & Millichap analysis suggests that store closings of anchors and other stores that draw traffic will also hurt in-line stores.As of the third quarter last year, rising vacancy was hitting major retail markets hardest in the West, Southwest and Florida. Topping the list were Sacramento and the Tampa-St. Petersburg markets, which registered 160 basis-point increases in vacancy, well above the national average of 110 basis points. Also among the 10 markets experiencing the biggest hikes in retail vacancy by the third quarter were Salt Lake City; Tucson; Jacksonville, Fla.; Phoenix, Las Vegas, Southern California’s Inland Empire, Cleveland and Fort Lauderdale, Fla.On the opposite end of the spectrum, a handful of markets bucked the national trend by showing modest improvement in retail vacancy rates, according to the Marcus & Millichap report. New York City’s appeal to tourists may have helped it score the biggest decline in vacancy, a 30 basis-point reduction that gave it a 4.7 vacancy rate at the end of the third quarter. Austin and Milwaukee also enjoyed slight dips in vacancy, and Boston managed to finish the third quarter at 5.9 percent, a wash with 2007. Another half-dozen major markets limited their vacancy increases to between 10 and 40 basis points, including Indianapolis, Philadelphia, San Francisco, Dallas-Fort Worth, Charlotte and San Diego.