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During the Financial Tsunami of 2008 that laid the foundation for the Great recession, the Retail segment of the commercial real estate industry suffered a huge hit.   Vacancy rates shot up to record highs, with both large national retailers and many local small businesses allowing their spaces to go dark, putting downward pressure on lease rates. The following two years provided few rays of hope as few properties traded hands and acquisitions were often very distressed situations.


Key factors that some industry analysts said would keep retail down – 1. Consumers completely closed their pocket books to repair household balance sheets. -2. the internet seemed to be consistent gobbling up increasing retail market share, the outlook for retail and shopping centers was considered grim by some experts. -3. Lending capital dried up, and lending requirements tightened.

Much has changed over the past three years.   Having attended the recent International Council of Shopping centers (ICSC) this past month, I can report the retail sector is brimming with optimism. First quarter results showed that US Shopping centers had plenty of momentum and their profitability had reached new heights.    Total income has been up, with rent growth actually increasing at a very steady pace.

Although many companies retreated during the 2009 -2011 time period, others recognized opportunity to expand market share and have moved ahead aggressively and we see those vacancy rates starting to edge back to more historic averages.

While we’ve been reading about a future where we’ll be buying everything on line, our reality is quite different.   Amazon.com turns 20 this year, and certainly on line sales continue to grow, at close to 12% a year but they are still only a sliver of all retail sales.   According to the US Department of Commerce sales from the internet made up only 6% of total retail sales in 2013.

What retailers have discovered, is that if they use their brick and mortar platforms, in conjunction with a robust internet program it allows them to create a more direct relationship with their customers. They can customize the shopping experience, and create greater brand loyalty. Many national retailers have harnessed the two components to grow their markets

As consumers have grown more confident it is clear the retail shopping experience has an emotional, and experiential, and social base that on line will never have.   The leading edge retail companies, and companies operating shopping malls recognize this fact and are incorporating it into their development strategies.

A second sign of revival in retail is the number of Shopping centers changing hands.   With lease rates, revenues and profitability increasing Shopping centers seem a good bet. Lending rates remain low, and lenders are willing to provide capital.


One local examples is Hazel Dell Square which had a recent change in ownership.  Built in 2007, it was developed by a local partnership between Gramor Development and CE John. The two companies believed the Hazel Dell market was underserved in the Clark County retail scene. Located on the south side of 78th street they brought in an LA Fitness as an anchor, and surrounded it with over a dozen service and retail businesses.    There was some modest turnover, and ongoing vacancy primarily from the closure of Hollywood Video as that industry went through its final days, but has been replaced with a regional grocery chain Nature’s Own so bring it close to 100% occupancy.   It sold several weeks back for 27.6 million dollars.

A second example is MAJ development’s complete transformation of the southwest corner of 164th street & Mill Plain Blvd.  Taking a tired restaurant concept and replacing it with a 7-11 a fuel station, Zoom Care, a Mattress retailer and Pacific Dental, a national dental practice looking to break into the Clark County market, they harnessed companies who had weathered the recessionary storm, and seeking to expand their market share. MAJ’s investment property division has found investors eager to acquire the stable long term cash flows these properties will generate.

However even with this new momentum, both nationally and locally, there are a significant number of centers that sit with major vacancy on their site, with many spaces not even ever having been built out.

Looking at these sites

The classic real estate adage that everything is about location location location is still as true today as ever.



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