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Power Centers Leading the Retail Comeback

09/04/2014
Strategic Retail Group, Retail Trends blog

The retail market has been beat up the last five years during the economic downturn, but it is finally getting over its bumps and bruises and getting healthy again. Leading the retail comeback trail is the regional retail power center segment.

Statistical Snapshot of Regional Retail Power Centers: 

- Arizona power center vacancy is between 5% and 6%, while total retail vacancy across all retail product types on average is around 10%.   Shopping center product is nearly 15% vacant currently. Nationally, Power Centers are at 6.2% vacant, lagging only malls categorically and outpacing the National Total Shopping Center vacancy of 8.6%.

- Arizona Power Center rents are considerably higher than normal retail shop rents {$21 psf vs $14 psf, respectively}.  Nationally, Power Center average rents are approximately $20 psf, nearly $5 psf higher than neighborhood centers and only lagging malls and specialty centers.    

Neighborhood retail centers have not performed as well as retail power centers due to the risk in the single anchor format. When grocers (like Tesco/Fresh & Easy, Basha’s and Albertson’s) shutter under-performing stores, the result can be catastrophic to the neighborhood retail center, since there is usually just one anchor tenant. Typically, the grocery anchor space sits vacant and the shop tenants suffer while crossing their fingers hoping and praying for a strong anchor replacement. Very rarely will the replacement anchor be equal in strength or in driving traffic as the departed grocery store. As a result, sales are affected and when sales slide, rent and vacancy ultimately suffer in this segment.     

The retail power center doesn’t suffer the same fate when an anchor tenant shutters a store. Power Centers are multi-anchored, regionally significant and value natured. The power center format provides safety, balance and anchor diversification, which is great for bringing local residents to the regionally significant localities. Box spaces (Linens and Things, Office Max, et. Al) are getting back filled with tenants that were left out of the initial lease-up, pad activity is improving, and well-positioned shops are leasing quickly; so quickly, in fact, that great space often times is generating multiple offers at above market rates from strong credit tenants. We can thank the burgeoning QSR (quick service restaurant) category for this “A” space competitive environment that is driving up rates and occupancy in power centers.

Let us now look at today and tomorrow, and beyond the numbers. Improving pad activity, mentioned above, is a noteworthy indicator of health and missed by most analytics. Pad activity (sales/ground leases) is starting to heat up and become significant again on undeveloped parcels or closed down restaurants within these Power Centers. QSRs and sit-down restaurants are writing offers and getting well-positioned pads under contract, and soon the automotive, medical and bank categories will follow suit. This is another power center fundamental that continues to improve and will help further strengthen this product type nationally.

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By: James DeCremer

Senior Vice President, Strategic Retail Group   

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