ICSC: International Council of Shopping Centers

U.S. retail development down to 90 million sf in 2009: report

Developers are putting the brakes on new centers this year as both consumer demand and financing dry up. Marcus & Millichap predicts that 90 million square feet of retail space will open this year, down from 131 million square feet last year. This is the lowest amount since 1995. New mall development is slowing, with only 6 million square feet slated nationwide this year. This slowdown will help stabilize the market in 2010 before a recovery starts in 2011, the firm says in a report.

It will not stem the tide of vacancies, though. Marcus & Millichap says U.S. retail vacancy will rise by 180 basis points, to 10.2 percent, this year, following a 120-basis-point increase last year. And rents are getting cheaper. The firm says average retail center asking rents will decline 4.5 percent this year, after holding steady last year. Effective rents slipped 1.1 percent last year and are expected to drop 5 percent this year. Many oversupplied markets will record steeper declines.

Most of the distress in the market last year was tied to maturing debt, but falling occupancy and rents will further compound things through this year. Marcus & Millichap considered some $10 billion of U.S. retail assets distressed at year-end 2008, with an additional $24 billion at risk. The rising number of distressed properties has caused buyers to expect deeply discounted pricing, even for properties that are operating soundly, the firm says. Outside of top-tier assets in prime locations, the expectations gap between buyers and sellers remains fairly wide, the firm says, though it does appear to be closing.