CoStar: No Rose-Colored Glasses Just Yet

April 30, 2010
By Allison Landa, News Editor

According to CoStar’s Q1 State of the U.S. Retail Market, things are still tenous out there. The information, analytics and research firm’s April 29 event looked at availability, vacancy, construction starts and transaction volume – and found that difficulty still provides friction against forward motion.

In terms of availability and vacancy, CoStar found that one in 10 square feet of U.S. retail space is either vacant or on the market. With significant store closes by national chains along with local retailers, CoStar reports that the vacancy rate has jumped by about 200 basis points from pre-recession levels. At the same time, the availability rate has increased by more than 400 basis points due to the presence of shadow space, or space that is vacant but not currently on the market. This translates to a 7.7 percent nationwide vacancy rate and a 10 percent availability rate, the firm said during its presentation.

CoStar said that construction starts have “crashed”, with retail property fundamentals spiraling down to a point that can’t support speculative construction. “Not that the banks are lending anyway,” the company said in its presentation. “and most retailers do not have or are unwilling to spend the capital to open new stores today. This should keep a lid on construction for some time to come.”

The good news came in the form of transaction volume, which increased in the first quarter. CoStar found that REITs and private equity players were net buyers during this time, which helped boost volume. They noted that REITs typically are in the market for high-quality products, of which there are less in the current market. “This is creating a scarcity premium that may put a floor on pricing for high-end centers,” the firm noted in its presentation. “Meanwhile, distressed sales also factored into higher volumes, accounting for nearly 20 percent of all transactions.”