Vacancy rates in the Reno-Sparks market rose to record highs in the first quarter due to the closure of several big retailers and many smaller shops.
A retail vacancy report issued by NAI Alliance says total first-quarter vacancy was at 1,836,132 square feet 14.7 percent of the region's 12.5 million square feet excluding mall space. The closure of large big box anchor tenants such as Circuit City and two Shoe Pavillions contributed huge hunks of vacant space to the anchor market, which stood at 12 percent. Both figures are the highest vacancy rates seen since NAI
Alliance began tracking market statistics in 1990.
Line shop vacancies retail storefronts smaller than 20,000 square feet were at 18.52 percent, still a whit under the regional record of 20.3 percent. Although a total of 123,354 square feet of retail space was leased in the first quarter, the large-store closures contributed to a net absorption loss of 84,929 square feet to the overall market.
Kelly Bland, senior vice president with NAI Alliance's retail properties group, says cutbacks in consumer spending are impacting both national and local retailers and are creating the rise in vacancy rates. The state
Department of Taxation says January taxable sales in Washoe County fell 17 percent from year-earlier figures, while taxable sales in Carson City were off 13.5 percent.
The upside, Bland says, is that the rise in vacancies creates better opportunities for new and existing retailers.
"Landlords are more negotiable these days," he says. "We are at better prices than we have had for several years, and it is opening doors for future evolving retailers that can match concepts with emerging consumer demand."
Landlords anxious to avoid dark and empty storefronts have significantly reduced lease rates for prime storefront space, says Chris Waizmann, vice president of retail properties with CB Richard Ellis.
"Three years ago you couldn't find a space, and now quality space is available and rates have dropped 15 to 20 percent depending on the center. It is a great time for tenants to find quality real estate with improvement at some of the lowest rates we have seen in five years."
And the retail market does have some bright spots, Waizmann adds. Staples recently opened 20,000-square-foot locations in northwest Reno and at Shoppers Square, and Smart and Final will open a second location in 30,000 square feet, also in Shoppers Square.
And DB Shoes recently opened up at Firecreek Crossing in the space formerly occupied by Shoe Pavillion. However, the larger retailers, such as Circuit City, are bumping up the vacancy rates, Waizmann says.
"We have seen a lot of shop tenants go dark this year and continue to struggle and fall out, and while they do impact the vacancy rate, these 20,000 to 30,000-square-foot guys, when they drop out, it significantly impacts vacancy levels."
Bland doesn't expect the market to turn around soon, with vacancy rates staying at record highs and consumer confidence at opposing lows through the next few quarters. Waizmann says vacancy rates will decrease when the larger junior and anchor tenants stabilize with one of the biggest question marks
being the closure of the Northtowne Lane Wal-Mart, which will add more than 100,000 square feet to the market. Grading at Wal-Mart's new site on East Second Street has begun, but construction has yet to begin.
And without a significant rebound in the housing sector, retail will continue to struggle, Waizmann adds.
Ken Mattison, vice president of the retail services group with Grubb and Ellis/NCG, says his office has seen some lessening of lending restrictions and increased strength in the retail market.
"Some of the guys we are talking to are trying to be more aggressive in their lending practices," Mattison says. "Certainly loan to values ratios are not as high as they once were, but that is a defensive posture they have taken."
Mattison says the struggling economy has put expansions by national and franchised brands on hold, but there has been activity in the local markets.
"People are coming out of stronger markets into second-generation space where rents are lesser, but traffic remains pretty solid," he says. "Deals are taking longer to get done, and people are being much more cautious and making sure it is the right move."
