Sales down occupancy up for retailers

November 14, 2008
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While retail sales have slowed down as consumers put the brakes on spending, there is good news in the retail real estate market.

At the end of the third quarter, the market’s vacancy rate was at its lowest point this year. According to a report from Grubb & Ellis|Paramount Commerce, the overall vacancy rate fell to 7.3 percent at the end of September — a decline from the two previous quarters.

Twenty-two thousand new square feet of space was leased in the third quarter. A total of 163,000 square feet has been either leased or sold so far this year. Another 36,000 square feet is being built, mostly on Alpine Avenue NW and 28th Street SE.

Stretches along 28th Street in Kentwood and Cascade Township and on Rivertown Parkway in Grandville had the lowest vacancy rates in the metro area at 5.5 percent and 4.9 percent, respectively.

But even though occupancy is up, GE|PC Vice President Mike Murray said activity in the retail market has slowed a bit. Small centers that hold a half-dozen retailers aren’t being built as frequently as they once were. And that means the mom-and-pop shops, many of which were started by laid-off or retired executives, aren’t the rage anymore.

“If you remember four or five years ago, people were throwing little strip centers up as fast as they could fill them with a pizza place, a movie store, a hair place and a cell phone store. That has almost come to a screeching halt,” he said.

“There are a couple of projects that are coming out of the ground on 28th Street SE. But we’re seeing very little activity in terms of tenants even moving around. So what’s changed this year is there has been virtually no new construction when it comes to inline retail spaces.”

As most would expect, Murray said the faltering economy has made a large contribution to the slowdown. But at the same time, he said, the metro area’s recent retail boom also has to share in some of the blame due to some overbuilding.

“Starbucks was throwing up as many franchises as they could in areas that just did not make sense. Now they’re starting to close those stores and reorganize their whole system because they just got too greedy and threw too much stuff up too quickly,” he said.

“We see some vacancies out there because of that, but the experienced guys are still out there.”

The experienced guys Murray referred to are younger franchise owners who have been around for at least a decade and own small chains of restaurants and shops. He said this group is still making money and is still looking for new locations and opportunities.

But others who would like to join them are experiencing difficulties in finding lenders to finance their start-ups. On top of that, Murray said, existing landlords with a track record have also discovered that getting a loan isn’t nearly as easy as it was a year or so ago.

“Even if they have a tenant that’s ready to go, landlords are even having a tough time going back to the bank to borrow more money to finish up a space in a center for a tenant. So that has been hurting things a little bit here,” he said.

“And it’s hurt some landlords that maybe got into something a few years ago that looked great then, but didn’t have a game plan for losing a tenant or two.”

A highlight this year in the retail market came when Robert Israels and his sons bought the Klingman’s Furniture Co. and moved the business into the former Rogers Department Store site on 28th Street SW in Wyoming. Murray said having Klingman’s there could bring more retail into that sector, which is the region’s only retail district without a big-box draw like a Wal-Mart or a Meijer’s.

“I think it will spur some new activity in that area just because it takes so much off the market in Wyoming, but it also brings a nice new look to Wyoming. It also puts a different type of product in Wyoming that they’re not used to,” he said.

“I think we’re going to see kind of the same but more of it because of that Klingman’s investment in that market. It’s going to draw more people there. Some of the sales are going to go up in that market because it’s going to bring more new people to that area.”

Murray said the biggest retail closing here so far this year has been Linens ’N Things, and that chain’s shutdown is minor when compared to all the national brands that have folded in metro Detroit this year.

Murray also said that a new lifestyle center, a major department store and a noteworthy grocery store will be going up on the East Beltline in the near future, and some tenants that are currently anchored at Woodland Mall will end up moving there in a few years.

“I’m worried about Woodland Mall over the next five to 10 years. I think a lot of tenants will be leaving there to go to that (lifestyle center) and I don’t know what’s going to happen to Woodland Mall,” he said.

“That’s not anything necessarily due to the economy. That has more to do with an old mall that is hidden and nobody can see anything.”

The start of the traditional holiday shopping season is just a week away, a time when many retailers hope to capture about two-thirds of their annual sales. The forecasts, though, aren’t calling for a strong selling season. If there isn’t one, the retail market may begin to change after New Year’s Day.

“We’re definitely going to see some store closings. I believe in 2009 our vacancy rate is going to up. There is going to be more vacancy in our market,” said Murray. “But I don’t think we’re going to see a huge gaping hole in our market.”

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