With consumers cutting back on spending, the retail industry is adjusting from a period of overbuilding and expansion, resulting in store closures, bankruptcies and rent reductions, a local retail specialist said Tuesday.
It’s part of the commercial real estate cycle where retailers learn to trim operations if they want to survive, Todd Manning of Marcus & Millichap brokerage said.
Starbucks, for example, is closing another 200 locations nationwide, including six in Las Vegas, following the closure of some 600 stores last year.
Retail follows rooftops, and rooftops on the fringes of Las Vegas have high foreclosure and vacancy rates, which translate into lower sales figures for stores in those areas, Manning said.
“If you look at the Starbucks locations that closed, most of them are in centers that are less than two or three years old,” he said. “When a company expands quickly, toward the last few years is when they become more relaxed on underwriting. They don’t pick the best location. They don’t pay as much attention to fundamentals as they did in the beginning when they opened more judiciously.”
Retail developers were poised to bring 1.5 million square feet of new space to the Las Vegas market in 2009, down from 5.9 million square feet last year, but only one new shopping center was completed in the first quarter while construction of others has lingered or stopped.
Triple Five Development has defaulted on land for its Great Mall of Las Vegas planned for the northwest and construction has been delayed on General Growth Properties’ 1.5 million-square-foot Summerlin Centre mall.
CB Richard Ellis brokerage reported 12.4 percent retail vacancy in the first quarter, up from 9.9 percent the previous quarter. Net absorption, or the amount of space leased by tenants, was negative for the third straight quarter, declining by 585,252 square feet. Asking monthly lease rates dropped 13 cents to $2.01 a square foot.
Retail broker Penny Mendlovic of CB said she’s seeing major chains vacating anchor space throughout Las Vegas, including four stores closed by Circuit City. Linens ’n Things closed stores in Summerlin and Henderson. The Federal Trade Commission is requiring Whole Foods to sell off Wild Oats, which had two stores in Las Vegas.
“It’s very tough right now because there’s a lot of moving pieces with national retailers,” Mendlovic said. “The reality is there’s a lot of companies on the watch list of national retailers either downsizing or closing. We’re in a market where we’re going to have a lot of retail space to absorb. There’s probably a three-year curve to absorb all this retail space coming back.”
A separate report from Colliers International showed first-quarter retail vacancy at 7.5 percent, compared with 5.8 percent in the previous quarter. Net absorption declined 243,124 square feet.
Despite an easing in new construction, rising vacancy drove Las Vegas down two spots to No. 22 on Marcus & Millichap’s 2009 National Retail Index. Vacancy is projected to increase 200 basis points this year to 10.5 percent, according to the brokerage’s retail report.
“One thing I’m telling clients right now is that they need to realize that for the better part of this decade, our economy was propped up by a consumer spending bubble,” retail broker Manning said.
The U.S. Commerce Department reported Tuesday that consumer spending declined 1.1 percent in March.
Contact reporter Hubble Smith at email@example.com or 702-383-0491.