The retail sector’s national vacancy rate dropped to 5.9% in the final quarter of 2015 on the heels of posting a strong 20 million square feet of net absorption, according to a new retail real estate report from the CoStar Group. This scenario bodes well for rent growth in the year ahead in an increasing number of shopping districts in the U.S. and Philly retail space markets, the report said.
CoStar’s 2015 State of the U.S. Retail Market Review and Forecast said the last quarter of the year saw only 12 million square feet of new retail space come online, capping off the year’s “moderated pace” of shopping center development that has continued into 2016.
Construction in the U.S. retail market, including the market for Philadelphia retail space, remains fairly low in comparison to earlier cycles, but new shopping center space now in development stands at its highest level since the recession — 70 million square feet nationwide, CoStar reported.
Included in the new retail projects now underway are 21 malls and five outlet centers, but only 10 power centers, the report noted. That is a significant drop in power centers than in the previous cycles, according to CoStar.
Grocery-anchored neighborhood centers, however, have increased considerably in the past two years, with 86 now underway, the report said. Thus trend clearly indicates of the strength of smaller independent in-line tenants and also reflects the positive impact of the continuing economic recovery on local economic strength, CoStar reported.
CoStar also noted a changing pattern among developers who are focusing more on urban mixed use infill projects rather than following the population to build shopping centers in far-out suburban locations.
This trend was especially notable in supply-constrained markets as New York City, Miami and Honolulu, CoStar said, adding that between 1% and 1.5% of new retail inventory currently is being constructed in these three markets. Among the major projects in these three cities are Miami’s Brickell City Centre, New York City’s shopping centers near the World Trade Center and Hudson Yards, and Honolulu’s International Market Place, opening in Waikiki this summer.
At the same time, retail markets such as Raleigh, Nashville, Houston and Charlotte that were previously high-growth markets but are not as supply constrained now are seeing lower levels of construction than the 2006-2008 real estate cycle, CoStar said.
Dallas, Raleigh, Fort Lauderdale, Orlando, and Austin, all of which have cleared out their overhang of vacant store space from the last cycle, had the strongest year-over-year demand growth in 2015, according to the report.
CoStar said rent growth in premier retail districts with at least $2 billion in spending power within a three-mile radius slowed in recent quarters and would remain good through 2016, but far below the explosive pace of the recent past.
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