Sour retail market helps existing merchants, new entrepreneurs

Southern Nevada's retail market boasted tenant waiting lists and record high rents during real estate's heyday. Today's recession-racked market paints a different picture: A glut of space lies empty despite rent cuts as deep as 30 percent.

There is an upside. The downturn has created new opportunities for retailers that were priced out of the market during the boom years. Landlords and brokers consequently saw a flurry of activity during the first quarter.

"Some tenants are moving into more premium locations that were once unaffordable," Grubb & Ellis Retail Group Executive Vice President Nelson Tressler said. "There are also tenants who are expanding now. But they still want huge concessions, including introductory rental rates in the dollar range and up to six months of free rent."

The valley's anchored retail vacancy rate has increased nearly 300 percent since the first quarter of 2007, when vacancy stood at a constrained 2.7 percent, Las Vegas-based economic advisory firm Restrepo Consulting Group reports. Southern Nevada had more than 43.1 million square feet of anchored retail space in 265 shopping centers during the first quarter, with a 10.2 percent direct vacancy rate.

"There's no denying that these are challenging times in our industry," Commercial Alliance Las Vegas President Robin Civish said. "But even a down market creates opportunities for someone. In this case, declining lease rates and building prices and historically high vacancy rates create opportunities for successful businesses to grow more rapidly.

"These conditions can also help good startup businesses set up shop in places and spaces they may not have previously been able to afford."

High unemployment in some instances has prompted entrepreneurs to pursue second careers in retail by opening small shops or family-owned businesses. The 117-acre Town Square at the Interstate 15-Las Vegas Beltway interchange offers kiosks and carts for startup retailers.

"Our program enables retailers to test something for a few months to determine whether the product is going to be successful. A cart will sometimes expand to in-line space and eventually into a store," Town Square General Manager Mike Wethington said. "People are looking for opportunities to see if it works for them."

A deluge of retail space has intensified landlord competition to attract tenants resulting in affordable pricing and other incentives. There were 199,221 square feet of vacant space the first quarter, Colliers International reports, while asking rents averaged $1.72 per square foot valleywide or nearly 12 percent less than a year ago.

"There is more activity, with more people inquiring about space," Colliers International Retail Group Senior Vice President David Grant said. "Now that rents have dropped 30 to 40 percent, retailers are taking advantage."

Because shoppers remain budget-conscious, bargain retailers' sales have ticked up during the economic downturn, industry insiders say. The Forum Shops at Caesars -- best known for high-end luxury stores -- is opening a new three-level, 60,000-square-foot store for H&M, a Swedish retailer selling stylish bargain-priced men's and women's clothing.

"Shoppers may be looking for a better deal, but when they find it, they'll shop a little more," Forum Shops marketing director Maureen Crampton said. "We still have higher end luxury goods, but we're combining it with more affordable price point alternatives."

Shopper activity is also surging at other midpriced shopping outlets. Year-to-date sales at the Miracle Mile Shops at Planet Hollywood Resort have risen 10 percent over 2009. The center attracted 22 million visitors last year and visitor traffic there is up 5 percent thus far in 2010 compared with a year earlier.

"Consumer confidence has returned to a degree, but not like the glory days," Miracle Mile Shops general manager Russell Joyner said. "We see that value-oriented mindset. We are seeing an increase through quantity. Customers are looking for value and we are offering that."

Chicago-based retail giant General Growth Properties, which in Las Vegas owns the Boulevard, Meadows and Fashion Show malls, the Grand Canal Shoppes at The Venetian and the Shoppes at Palazzo, is seeing encouraging signs of consumer spending, too. All three Strip properties are reporting foot traffic gains since December due to special events and aggressive budget-minded promotions.  

"The affordability and accessibility of Las Vegas makes our city a strong destination, with shopping as a top visitor activity," General Growth Properties Vice President of Marketing Susan Houck said. "We focus on tourism outreach and partner with the Las Vegas Convention and Visitors Authority and other key tour operators to increase visitor prearrival awareness."

The Retail Association of Nevada reports that sales performance of publicly traded retail businesses with local operations last month rose to its highest point in more than five years. The association attributes the increase to improvements in the broader equity market. As of March, the retail index value was 51 percent greater than the same month in 2009. 

"We are starting to see some discretionary spending come back as the savings rate falls," association government affairs director Bryan Wachter said. "The commercial market is showing some signs of life." 

A full retail market recovery could still be long and painful. Retail employers have shed 6,500 positions since last year. More retailers have moved out of space than moved in, as the market recorded nearly a half-million square feet of empty shop space during the last year, Las Vegas-based business advisory firm Applied Analysis reports. Statewide taxable retail sales were down 8.1 percent at the end of the first quarter compared with last year. 

"While the sequential rates of declines appear to be slowing, cumulative declines totaling 20 percent-plus since the recession began are having an impact on retailer profitability and staying power," Applied Analysis Principal Brian Gordon said. "Just as businesses have been required to adjust to market dynamics, landlords are sharing in the reduced ability to service debt.

"With earning power remaining limited and losses accumulating for many," Gordon added, "the recovery process will result in price points well below the peak and more in line with long-run historical averages." 

Contact reporter Tony Illia at tonyillia@aol.com
or 702-303-5699.