Retail Property Forecast, August 2009
On the demand side, the NAR/TWR forecast predicts that the negative demand trends that were registered in the first half of 2009 in the US retail real estate market will continue in the second half of 2009 at a somewhat lower pace. In particular, negative net absorption of 4.9 and 4.8 million square feet of retail space is predicted for the third and fourth quarter of 2009, respectively, resulting in a reduction of 9.7 million square feet in the US retail occupied stock in the second half of 2009.
The NAR/TWR retail property forecast predicts that retail space demand will continue to decline in 2010, but at considerably lower pace as net absorption is estimated to be negative 3.62 million square feet.
Despite the deteriorating market conditions, retail space completions in the second half of 2009 are predicted to reach 6.8 million square feet, slightly higher than the 5.9 million square feet of retail space completed in the first half of 2009. Thus, retail space completions in 2009 are predicted to total 12.8 million square feet, which represents significant deceleration of supply growth compared to 2008, when more than 26 million square feet of retail space were completed. In 2010, retail space supply is predicted to further decelerate to only 6.4 million square feet. With declining demand and rising supply, the NAR/TWR retail property forecast predicts that the US retail vacancy rate will continue to rise in the second half of 2009 and climb from 11.7% in the second quarter to 12.6% by the end of the year. The national retail vacancy rate is expected to continue to rise slowly in 2010 and average 13%. As a result of the predicted supply-demand dynamics, the average US apartment rent, which declined 0.5% in the second quarter of this year, is expected to continue sliding downwards for the rest of 2009 and in 2010. More particularly, the average US retail rent is predicted to register quarterly declines of 2.4%, and 2.6% in the remaining two quarters of this year, resulting in cumulative annual decline of 6.1% for the whole year. In 2010, the average US retail rent is predicted to decrease further by 4.1%.
Although the NAR/TWR retail property forecast applies to the national level, it suggests that retail property investors should carefully evaluate the dynamics of the local markets within which they operate in order assess the future path of local retail rents as accurately as possible, as there are high risks on the downside.
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