Sacramento Retail Market Report Q1-2008
By LC on Apr 3, 2008 in Commercial Real Estate, Featured Articles
- While vacancy is still up 1.1% from 2007 at 7.2%, it began a trend downward in the first quarter.
- The only areas in where the vacancy exceeds 7.2% are Carmichael, Greenhaven, Rancho Cordova, Natomas(North and South), and Roseville/Rocklin. The average vacancy is weighted by the leasable square footage in each submarket.
- Notable improvements are in Elk Grove (4.3%) , Lincoln (6.1%) and Folsom (6.3%)
- Net Absorption is up from 2007, but trending down for the first quarter which saw 275,148 square feet leased.
- Construction is trending up from 2007 and up for the first quarter. Most of these 3.374M SF under development are large user deals, the new Elk Grove Mall, or projects to be delivered within 12-18 months. 242,000 SF was added to the GLA this past quarter.
” Although the retail market has slowed over the past twelve months…the Sacramento Region is poised to weather the storm. Torto Wheaton predicts job growth at 1.7% over the next two years, and an unemployment rate of 6.2%, against the California average of 6.1%. “
The article went on to say that the largest unemployment gains will be made in the government sector and in private educational and health services.
LocalCenters experienced our best leasing quarter since the 1st quarter of 2007. The prospective tenant quality is improving, and while rents have certainly softened for now, they appear to be firming up in the areas where vacancy is dropping.
More importantly, our tenant sales are improving overall. Our restaurants are doing OK to great, and all vacant restaurant space has been absorbed. Rents ultimately reflect the tenants’ ability to pay them, and the firming up is consistent with strengthening sales.
While nearly all tenants had a rough time in Q4 2007, especially during October, this is the time when those that bite the bullet and spend the money for advertising and offer value deals pull away from those who do not, and those tenants have a much higher chance of an ultimate failure rate.
Nationally the trend appears to be consistent with our local market. The quality retailers are reporting even to slightly higher same store sales, while the laggards are starting to fold. When this “thinning of the flock”has occurred in the past, it often serves as an indicator that we’re near a bottom and capitulation. From Associated Press:
“I think that the desire to sell is coming off,” said Thomas J. Lee, equities analyst at JPMorgan. The fact that the market has not been shaken by recent disappointing economic data “tells me that the recession is largely discounted.”
In addition to the congressional testimony, investors got a bit of relief from the Institute for Supply Management. The ISM said Thursday the services sector contracted only slightly in March — a stronger performance than in February, and a better reading than many economists predicted.
