A New Strategy

June 30, 2010  by in UnCategorized   

By Home Furnishings Business in on July 1, 2010

Location, location, location.

We€™ve heard those words in relation to real estate€”both residential and commercial€”since most of us have been cognizant of the processes involved in home buying or business locating.

Many a retailer has felt the squeeze when consumer shopping patterns shift or the latest, greatest power center opens up across town, leaving a former prime location stuck in the middle of a ghost town. With the economy of late€”and especially last year€”that tried-and-true mantra of real estate is taking on a new twist.

The new saying about town for real estate strategy could just be relocation, relocation, relocation.

While all of the economy was taking a beating this time last year, commercial real estate was facing challenges all its own.

According to Reis, provider of commercial real estate market information, the second quarter of last year neighborhood and community shopping center returned 8.14 million square feet into the mix of vacant space. Reis said that was the highest quarterly level of negative absorption it had ever reported.

The national average vacancy rate rose 50 basis points to a record 10 percent. During the squeeze in revenue, landlords and property owners, in light of climbing vacancy rates, were forced to lower rents by an average of 0.6 percent, the largest single quarter decline since 1999. Rental prices for last year fell more than 4 percent.

Fast-forward to present day, and the latest figures from the National Association of Realtors (NAR) predict more of the same€”higher retail vacancy rates and lower rental rates.

According the association, retail vacancy rates should rise from 12.6 percent in the first quarter of this year to 12.8 percent in the first quarter of 2011, and should hold at that level for most of next year. The group goes on to say that average retail rent is projected to decline 1.5 percent in 2010, then edge up by 0.4 percent next year.

Net absorption of retail space in 53 tracked markets is likely to be a negative 3.7 million square feet this year and then a positive 8.9 million in 2011, according to NAR.

No doubt many of those vacancies have come from the many, many furniture and decorative accessories retailers that have shuttered stores during the topsy-turvy economy. Sad news, indeed.

Looking ahead, there€™s a glimmer of hope in the bleak real estate outlook. The glut in the commercial real estate market€”coupled with lower rental rates€”could be a hidden gem for ambitious, bullish retailers looking to position themselves for the economic recovery.

Some retailers€”yes, we€™ve spoken with a few of them this issue€”have already had the opportunity to snap up some strong real estate deals, despite the rocky fits and starts our industry has seen this year.

Inside, you€™ll find their stories, their rationale and reasoning for stepping up in less-than-ideal market. In addition, a number of seasoned commercial real estate experts peer into their crystal balls for a glimpse into what€™s down the line for retail real estate, and even how to negotiate the best deals.

We€™ve pulled together an amazing amount of information, so sit back and devour it. As always, we€™re sure you€™ll find chunks of information that will be useful.