Reis, Inc. recently released their September 30th third quarter 2010 reports for commercial real estate properties. This post will focus on some interesting stats from their Neighborhood Shopping Center 3rd Quarter 2010 Market Report.
The research firm defines a Neighborhood Shopping Centeras “A shopping complex constructed around a supermarket and/or drug store as the only anchor tenant(s). It provides for the sale of convenience goods and personal services for the day-to-day living needs of the immediate neighborhood. The gross leaseable area typically ranges from 30,000 square feet to 150,000 square feet.”
Out of 1,390,000 square feet of properties tracked in Frederick County, the average asking price per square foot fell from $17.97 per square foot to $17.56 over the last twelve months, which is a 2.28% fall. This does not include the typical proration for common area expenses, real estate taxes, etc.
On the other hand effective rent decreased from $16.40 per square foot to $15.49 over the last twelve months, which is a 5.55% fall. Effective rent is defined as the average actual agreed lease rate (market rent), less the present value over the lease term of free rent, other extraordinary tenant improvements and concessions.
It is also important to note that with the above being average rents, Reis does break down the asking rents for nonanchor tenants by age of the property, which shows a significant swing between $15.12 and $27.86. So using the averages as a comparison factor can be very misleading.
Vacancy factors for neighborhood retail real estate are up on average from 7.4% in the 3rd quarter of 2009 to 8.5% as of September 30, 2010. This is actually a positive statistic when compared to the national average of 12.0%; however the 8.5% figure is slightly above the average vacancy rate for the Maryland suburbs around DC which sits at 8.1%. All these figures are as much as 75% to 100% higher than the five year annualized averages.
The combination of the increase in the vacancy rate and the decrease in average lease rate can be attributed to tenants leaving and new tenants filling vacancies at a lower rate; however a reasonable percentage of the decrease in lease rates can also be attributed tenants approaching their landlords at renewal time (or somewhere in between) to request a reduction in their monthly lease payment. We have found this to be the case in the commercial properties that the MacRo, Ltd. Property Management Department oversees. Often a landlord would rather make a deal with the tenant to stay at a lower rent verses have to bare the risk of vacancy while seeking a new tenant in a difficult market.
Once again it is very apparent that the while Frederick County continues to feel significant pain from the existing real estate market slump, compared the national statistics we are weathering the storm reasonably well.