By PETER MOERSCH
The second quarter’s data is the first true opportunity to separate square foot absorption from market segmentation. For the first time in several quarters we have seen an increase in the vacancy rate (as shown as a percentage) for all retail space types except power centers.
Market skeptics are seeing this as a sign of the downturn. A deeper review of the data and some of the causes show otherwise.
During the period there has been a net absorption of 570,010 square feet. Only traditional community and strip centers showed negative absorption and in small amounts.
The data that can be interpreted as negative showed two-tenths of a percent increase in vacancy. The data on the positive side is the total vacancy of only 3.2% and no space type is showing more than 4% vacancy. These numbers would be remarkable in just about any market.
The next question is “Where is the change coming from?”
As previously noted there are market shifts at work. A condensing market for the grocery operators has lowered occupancy in some community centers. There has been a shift from shop space to specialty centers, which is evidenced by the fact that the specialty center category has had the highest level of new construction in pure square feet, the highest amount of absorption when compared to total inventory and a full point decrease in the vacancy rate from 4.8% to 3.8%.
Most important in examining the change in the market preferences is that during the time there is the greatest absorption of certain types of centers, those landlords have seen increases in some rents. During the same period, as community centers have shown some (though limited) decline, the rents have declined as well.
Preferences continue to shift. New “Main Street” style and mixed-use projects continue to blossom.
The greater issue of the market is that investors and developers need to be wary of the data that is presented to them and be ever cognizant of the shifts in market demand and preferences. The county still is in a very positive state of change and no segment is benefiting as greatly from that as retail. New vacancies should allow for creative redevelopment of those centers so new construction will continue despite the scarcity of land. Expect to see more of the same in the third quarter.
Moersch is a vice president in the Anaheim office of CB Richard Ellis.
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