Download - Retail Market Overview - 1st Quarter 2009

8/14/2019 Retail Market Overview - 1st Quarter 2009

1/4

PGPVALUATION INC IS PROUD TO PARTNER WITH A WORLDWIDE AFFILIATION OF INDEPENDENTLY OWNED AND OPERATED REAL ESTATE SERVICES .THE POWERFUL PARTNERSHIP W

CMN ALLOWS PGPVALUATION TO OFFER ITS CLIENTS A VERY BROAD RANGE OF SERVICES AND RESOURCES IN MORE THAN 100 MARKETS AROUND THE WORLD.

RETAIL NEWSLETTER

[PORTLAND,OR] [QUARTER ONE 2009]Commitment to Value

RRRRETAILETAILETAILETAIL MMMMARKETARKETARKETARKET OOOOVERVIEWVERVIEWVERVIEWVERVIEW

By Grant NorlingOregon Retail Specialist 503.542.5416

The Portland Metro commercial real estate market is

beginning to show signs of an economy adversely impactedby recession. The office, industrial and retail sectors are

slipping and can no longer help buoy the economy whichhas been drug down by the tanking residential market.

Without the ability to gaze into a crystal ball to predict thefuture, it is hard to forecast when the overall real estatemarket will hit bottom and when it will begin to crawl backout. Dont expect an inflection point for at least a few more

quarters even from the most optimistic perspective. Doexpect a vast amount more retailers to call it quits in the

coming months as the aftermath of the grim holiday seasonis sorted out. Some experts project that over 12,000 stores will

go dark across the US by year end. When the dust settles, thisrecession will hopefully provide the road map to reinvent theretail market in a way to generate sustainable growth.

The 2008 holiday shopping season was dismal and left manyretailers reeling in the already stagnant economy. The

International Council of Shopping Centers (ICSC) which tracksretail sales volume shows that the holiday retail sales fell to a

low that hasnt been touched in over 35 years. The outlookfor 2009 is bleak; unemployment has reached a high thathasnt been seen since 2003, rising to 9.0% in Oregon and will rise higher. In reaction, retailers are slashing prices to

entice consumers that have expendable income to shop attheir stores. However, these are not a sustainable long-term

business practices.

With many big box retailers filing for bankruptcy, there isincreasing availability of unobstructed spaces available in

the marketplace. With the collapse of Wicks, Linens N Things,

and Circuit City, it has left an additional 1% vacancy in thelocal Portland retail market alone. Many of these vacantspaces arent the appropriate size to accommodate the few

active national retail tenants. A high level of incentives fromproperty owners will be required to attract willing tenants tolease the empty spaces. Likely incentive will either come with

high tenant improvement funds or months of concessions orboth. However with many national retail tenants taking a

conservative growth route and waiting out the uncertainty ofthe volatile financial markets; it is likely that a majority of

these vacancies will endure prolonged vacancy periods.

SSSSUPPLYUPPLYUPPLYUPPLY,,,,VVVVACANCYACANCYACANCYACANCY&&&&AAAABSORPTIONBSORPTIONBSORPTIONBSORPTION

Retail supply, vacancy and absorption are analyzed usitheNorris, Beggs & Simpson Retail Market Report. As of t

end of the fourth quarter 2008, the total retail supply in thPortland market was 43,178,907 SF of which 2,521,052 was vacant, indicating a vacancy rate of 5.8%, up 90 ba

points from 4.9% one year ago. This shows a relatively hig vacancy rate from what the Portland market

experienced in the past five years. This increase can b

largely attributed to the increase in vacant big box spacdue to bankrupt national and regional retail chaiCurrently, the Portland market is experiencing a ret vacancy rate that is slightly above the range typic

exhibited by healthy markets of 4 to 5%.

The following table details changes in retail suppabsorption and year-end vacancy over the past 10 years.

YearYearYearYear Absorption (SF)Absorption (SF)Absorption (SF)Absorption (SF) Vacancy VacancyVacancyVacancy

1999199919991999 506,141 5.0%5.0%5.0%5.0%

2000200020002000 979,766 6.0%6.0%6.0%6.0%

2001200120012001 342,886 6.7%6.7%6.7%6.7%

2002200220022002 375,920 5.4%5.4%5.4%5.4%

2003200320032003 242,709 4.3%4.3%4.3%4.3%

2004200420042004 2,461,489 4.3%4.3%4.3%4.3%

2005200520052005 808,981 4.7%4.7%4.7%4.7%

2006200620062006 46,584 4.8%4.8%4.8%4.8%

2007200720072007 1,100,000 4.9%4.9%4.9%4.9%

2008200820082008 339,774 5.8%5.8%5.8%5.8%

TotalTotalTotalTotal 9,476,3329,476,3329,476,3329,476,332Source: Norris Beggs & Simpson Retail Market Report

Portland Metro Retail DemandPortland Metro Retail DemandPortland Metro Retail DemandPortland Metro Retail Demand

The Portland retail market has achieved positive retabsorption each of the past 10 years, which is a positidemand indicator. This trend is projected to abruptly reverin the coming quarters as the market continues to soften.

The Portland market consists of seven general submarkeincluding: Central City, Sunset Corridor, Southwest, Eastsid122nd/Gresham, East Clackamas and Vancouver. Five of tseven sub markets achieved positive year-to-daabsorption. Particularly strong submarkets include the EaClackamas and Eastside, which have retail vacancy rates 2.5% and 5.0% respectively. The 122nd/Gresham and Cent


2/4

Retail Newsletter Q1 2009 Portland O

2 1. Real Capital Analytics Capital Tends Monthly 2008 (www.rcanalytics.com)

City submarkets cover the high end up the vacancyspectrum operating at 7.5% and 8.0% vacancy respectively.

The following table provides the estimated retail space percapita (SF/Capita) for the Portland Metro area compared to

Salem and nationally.

CatergoryCatergoryCatergoryCatergory SF/CapitaSF/CapitaSF/CapitaSF/Capita

Portland Metro 28Salem 41National Low 22National High 74National Average 44Source: CoStar Property

Retail Supply/CapitaRetail Supply/CapitaRetail Supply/CapitaRetail Supply/Capita

Portland ranks as the third lowest retail supply per capitaaccording to CoStar. This positions Portland well to beartough economic times and is evidence that the Portlandmarket is not overbuilt with retail like many major US markets.Presently, it is easier to appreciate the insolating impact thatthe UGB and stringent zoning have on the region, rather than

focus on the obstacles they present to sustained growth..

CCCCOMMERCIALOMMERCIALOMMERCIALOMMERCIAL &&&&RRRRETAILETAILETAILETAIL SSSSALESALESALESALES

Nationally commercial property sales decreased by almosttwo-thirds; dropping from $450 billion in 2007 to below $150billion in 2008 according to Real Capital Analytics. 1Furthermore their data reveals that retail sector sales volumedropped from $75 billion in 2007 to just over $20 billion atthe close of 2008. Looking forward to 2009; the marketshouldnt be much different. A close look at the Portlandmarket retail sales volume for 2008 reveals its nearly half of

what it was at the close of 2007. The chart below summarizes

some of the sales from 2008 and breaks them down intothree categories; Anchored, Strip and Other (triple net, fastfood, freestanding, etc).

2008 Investment Retail Sales - Oregon2008 Investment Retail Sales - Oregon2008 Investment Retail Sales - Oregon2008 Investment Retail Sales - Oregon

CategoryCategoryCategoryCategory AnchoredAnchoredAnchored Anchored StripStripStripStrip Other*Other*Other*Other*

SizeSizeSizeSizeLow 40,800 12,000 1,690High 78,292 27,710 14,820

Average 53,306 16,465 5,264Sale PriceSale PriceSale PriceSale PriceLow $6,925,000 $1,575,000 $625,000High $16,762,867 $6,200,000 $7,300,000

Average $12,165,717 $4,018,250 $2,607,479Sale Price/SFSale Price/SFSale Price/SFSale Price/SFLow $170 $131 $191High $322 $347 $835

Average $226 $248 $528Cap RatesCap RatesCap RatesCap RatesLow 6.5% 6.5% 6.0%High 7.6% 7.0% 8.5%

Average 7.0% 6.7% 7.2%Source: PGP Valuation, Inc. Database *Fast food, freestanding & NNN

Since the early 2000s investors have looked for relatively sainvestment vehicles. With the stock markets slumping amoney markets erratic, many investors flocked towards reestate investing. With property values on the rise it was a sabet that any property they bought could be sold for a proin five years. However with the recent softening of tcommercial market, the residential market six months prior that, and the CMBS market evaporating overnight; it has l

many participants at risk of being upside down in thinvestments. The previous five years of a bull real estamarket peaked and we are now in the midst of a bemarket. Investors are being less hasty with their money aare searching for the best deals they can find.

CCCCAPITALIZATIONAPITALIZATIONAPITALIZATIONAPITALIZATION (CAP)(CAP)(CAP)(CAP)RRRRATESATESATESATES

The following table shows historical CAP rate trends in Oregofor the past several years. The average CAP rate for centers rose from 6.8% during 2007 to 6.9% in 2008; nominal change; however, a telling sign of the times come. Increased vacancies will likely push CAP rates highin the coming year as investors take a more conservati

approach for non-stabilized properties and are faced whigher costs for loan dollars, which will require reduced pricto maintain modest cash-on-cash returns.

Retail CAP Rates - ORRetail CAP Rates - ORRetail CAP Rates - ORRetail CAP Rates - OR

YearYearYearYear

Type ofType ofType ofType of

CenterCenterCenterCenter CAP Rate RangeCAP Rate RangeCAP Rate RangeCAP Rate Range

AveragAveragAveragAverag

CAP RaCAP RaCAP RaCAP Ra

2002200220022002 Strip 8.3 - 10.8% 9.69.69.69.6

Anchored 7.9 - 9.5% 8.9%8.98.98.9

All CentersAll CentersAll CentersAll Centers 7.9 - 10.8%7.9 - 10.8%7.9 - 10.8%7.9 - 10.8% 9.29.29.29.2

2003200320032003 Strip 8.0 - 9.6% 8.88.88.88.8Anchored 7.0 - 9.5% 8.7%8.78.78.7


2004200420042004 Strip 6.5 - 8.9% 7.67.67.67.6

Anchored 7.0 - 9.4% 7.6%7.67.67.6


2005200520052005 Strip 6.4 - 7.8% 7.17.17.17.1Anchored 5.9 - 8.6% 7.2%7.27.27.2


2006200620062006 Strip 5.5 - 10.1% 6.96.96.96.9

Anchored 5.7 - 7.7% 6.7%6.76.76.7All CentersAll CentersAll CentersAll Centers 5.5 - 10.1%5.5 - 10.1%5.5 - 10.1%5.5 - 10.1% 6.86.86.86.8

2007200720072007 Strip 5.8 - 8.1% 6.86.86.86.8

Anchored 6.2 - 7.3% 6.7%6.76.76.7


2008200820082008 Strip 6.5 - 7.0% 6.76.76.76.7

Anchored 6.5 - 7.6% 7.0%7.07.07.0

All CentersAll CentersAll CentersAll Centers 6.5 - 7.6%6.5 - 7.6%6.5 - 7.6%6.5 - 7.6% 6.96.96.96.9Source: PGP Valuation, Inc. Database


3/4


3

CAP rates in Oregon trended downward for several years;however, they stabilized (2006-07) and have trended upward

slightly in the past year due to the credit crisis and increasedinvestment risk in todays economy. Interviews with sales

brokers familiar with both local and national real estateinvestments indicate that CAP rates and corresponding

values within the Pacific NW region are holding strong relativeto other regions. However, this might be a lag effect similar

to the one seen in our housing markets.

Several factors contribute to the relatively strong commercial

real estate fundamentals in the Pacific NW region: (1)stringent zoning and scarcity of developable commercial

sites create a barrier to entry for new development; (2) stablesupply/demand conditions (vacancy levels) insolate existingdevelopment and ensure that market rent levels at minimum

match inflation; (3) very few prime investment properties areavailable for sale, while demand from local, regional and

national investors is still relatively strong in this marketplace;and (4) the relationship between NOI and value (CAP rates)

have remained in balance relative to other regions. Even the

best markets with the most ideal fundamentals are primedfor correction in a slumping global economy.

UUUUNEMPLOYMENTNEMPLOYMENTNEMPLOYMENTNEMPLOYMENT,,,,WWWWHENHENHENHENWWWWILLILLILLILL IIIITTTT PPPPEAKEAKEAKEAK????

Unemployment is on its way up as recession breeds job

losses. Oregon has the 6th highest unemployment rate in theUS as of December. The national average is at 7.2% and

Oregon is almost two hundred basis points higher at 9.0%.Some of our neighbors have slightly higher unemployment,

with Nevada at 9.1% and California at 9.3%. Expectunemployment to rise with the number of retailers and majoremployers downsizing or declaring bankruptcy. President

Obama is working towards an economic stimulus program tohelp combat the high unemployment; however, it could

take several months before any relief is created by thisprogram. Some economist are doubtful of the long-termbenefits than can be provided by any stimulus package.Below is a graph that charts unemployment in Oregon and in

the United States as it has been on the rise in the past year.

Unemployment 2008Unemployment 2008Unemployment 2008Unemployment 2008

4%

5%

6%

7%

8%

9%

10%

January April July October

Oregon United States

TTTTHEHEHEHE BBBBIGGESTIGGESTIGGESTIGGEST LLLLOSERS OFOSERS OFOSERS OFOSERS OF 2008200820082008

Banks are getting a handout from the government for evebad investment decision they made and retailers are beileft to bare the burden of a sour economy. Its inevitable the strongest retailers to survive and those who were toaggressive with their business model being forced inbankruptcy court to settle their now troubled assets; causitens of thousands of jobs to be lost in the mean time. Herea list of the biggest losers in the retail world.

Walgreens Circuit City Wilson LeatherWalmart Linens 'N Things Sharper Image

Lowes Wicks LevitzJC Penny Macys GottschalksBest Buy KB Toys Wilson LeatherWinco Mervyns Blockbuster

McDonalds Shoe Pavillion Hollywood Video

Losers of 2008Losers of 2008Losers of 2008Losers of 2008

Many retailers may have had a slow year, but some shoucount their blessings as they hold on. Those who haannounced major bankruptcies or store closings asummarized in the following table with the number of stoclosings nationally listed on the right.

RetailerRetailerRetailerRetailer StatusStatusStatusStatus Stores CloseStores CloseStores CloseStores Close

Ann Taylor Re-StructuringRe-StructuringRe-StructuringRe-Structuring 1Banana Republic Re-Structur ingRe-StructuringRe-StructuringRe-StructuringCircuit City Chapter 11Chapter 11Chapter 11Chapter 11 7Disney Stores Chapter 11Chapter 11Chapter 11Chapter 11Foot Locker Re-StructuringRe-StructuringRe-StructuringRe-StructuringLinens 'N Things Chapter 11Chapter 11Chapter 11Chapter 11 3Macy's Re-StructuringRe-StructuringRe-StructuringRe-StructuringMervyn's Chapter 7Chapter 7Chapter 7Chapter 7 1Pacific Sunware Re-StructuringRe-StructuringRe-StructuringRe-Structuring 1Phill ips-Van Heusen Re-StructuringRe-StructuringRe-StructuringRe-Structuring 1Sharper Image Chapter 11Chapter 11Chapter 11Chapter 11Starbucks Re-StructuringRe-StructuringRe-StructuringRe-Structuring 6

Wilson's Leather Chapter 11Chapter 11Chapter 11Chapter 11 1Zales Jewelers Re-StructuringRe-StructuringRe-StructuringRe-Structuring 1

ForecastingForecastingForecastingForecasting

The Rivers at Oregon City is a proposed 64 acre shoppicenter to be constructed at the intersection of I-205 and Hw213. It will sit adjacent to Home Depot and will be anchoreby a Target and a Regal Cinema. Sub-anchors include BeBuy, Staples, Bed Bath & Beyond, and Dicks Sporting GoodTotal retail building square feet is projected to come to haover 706,000 SF


4/4


4 1. Real Capital Analytics Capital Tends Monthly 2008 (www.rcanalytics.com)

TTTTHEHEHEHE DDDDOWNFALL OFOWNFALL OFOWNFALL OFOWNFALL OF TTTTHEHEHEHE BBBBIGIGIGIG BBBBOXOXOXOX????

Linens N Things and Circuit City will soon account for ov1000 stores across the United States to go dark and a

pushing vacancy rates up. In addition, numerous retailers aslowing expansions due to consumers cutting back

spending and demand for these big boxes is diminishinThese spaces are large; from 35,000 SF to over 100,000

with lot sizes typically above three acres. Below is a rundowof the recent big box spaces in the Portland Metro markthat have gone dark and remain vacant. These vacanc

represent roughly 1% of the total 42 million SF of space in thPortland Metro market area.

Former TenantFormer TenantFormer TenantFormer Tenant City CityCityCity Sq.Sq. Sq. Sq.

Mervyns Vancouver 82,2

Linens N' Things Portland 40,1

Linens N' Things Portland 35,0

Linens N' Things Beaverton 45,0

Linens N' Things Tanasbourne 38,4

Levitz Clackamas 34,1

Levitz Tigard 40,0

Wickes Jantzen Beach

Shoe Pavilion Portland 17,5

Shoe Pavilion Jantzen Beach 19,9

Shoe Pavilion Beaverton 16,5

Total 420,2

Source: New & Neville Real Estate Services

Vacant Box SpacesVacant Box SpacesVacant Box SpacesVacant Box Spaces

Circuit City lost its battle with the recession and was force

into chapter 11 even after the initial closing of 155 pooperforming stores across the Midwest. With a lacklus

showing of buyers to purchase existing leases and bleedicapital at the seams; no other choices were left but to clothe remaining 567 stores and liquidate all assets. Circuit C

is planning on having all of its stores liquidated by the end March which leaves four stores in Portland and one store

Salem going dark before the start of the second quarter. Thfollowing chart breaks down each of these buildings a

vacant square footage that they will leave for in the market

Former TenantFormer TenantFormer TenantFormer Tenant LocationLocationLocationLocation Sq.Sq. Sq. Sq. Circuit City Gateway 37,8

Circuit City Jantzen Beach 37,3

Circuit City Washington Square 37,0

Circuit City Clackamas 37,0

Circuit City Salem 37,0

Total 186,2

Source: CoStar

Vacant Box SpacesVacant Box SpacesVacant Box SpacesVacant Box Spaces

PGPPGPPGPPGPVVVVALUATIONALUATIONALUATIONALUATION IIIINCNCNCNC110SWYAMHILL STREET,SUITE 200PORTLAND OREGON 97204-3024WWW.PGPINC.COM

W.W.W.W.GGGGRANTRANTRANTRANT NNNNORLINGORLINGORLINGORLINGMANAGING DIRECTOR -PORTLAND [email protected]

PGPVALUATION INC IS A REAL ESTATE APPRAISAL CONSULTING

FIRM.ESTABLISHED IN 1978 IN PORTLAND,OREGON, AND HAS

GROWN TO BECOME ONE OF THE LARGEST COMMERCIAL

VALUATION FIRMS IN THE COUNTRY.

PGPVALUATION INC IS PROUD TO PARTNER WITH COLLIERS

INTERNATIONAL, A WORLDWIDE AFFILIATION OF INDEPENDENTLYOWNED AND OPERATED REAL ESTATE SERVICES. COLLIERS WAS

AMONG THE FIRST COMMERCIAL REAL ESTATE ORGANIZATIONS

TO RECOGNIZE THE IMPORTANCE OF LOCAL KNOWLEDGE ON A

GLOBAL SCALE, AND TO PROVIDE CONSISTENT, SUPERIORSERVICE IN MULTIPLE LOCATIONS.

THE POWERFUL PARTNERSHIP WITH COLLIERS ALLOWS PGP

V ALUATION TO OFFER ITS CLIENTS A VERY BROAD RANGE OFSERVICES AND RESOURCES IN MORE THAN 100 MARKETS

AROUND THE WORLD.

FOUNDED IN 1978 BY THREE OF THE BIGGEST NAMES IN THE

BUSINESS, DAVE PIETKA, DON PALMER, AND DAVE GROTH,PGPV ALUATION HAS GROWN TO BECOME AN INTERNATIONAL

FIRM WITH 250 ASSOCIATES IN THREE COUNTRIES.

OFFICES LOCATED IN:

UUUUNITEDNITEDNITEDNITED SSSSTATESTATESTATESTATESBOISE, BOSTON, CARLSBAD, CHICAGO, COLUMBUS, DALLAS,

DENVER, HONOLULU, IRVINE, LOS ANGELES, PORTLAND,PHOENIX,ROSEVILLE,SAN DIEGO,SAN FRANCISCO & SEATTLE

CCCCANADAANADAANADAANADA

CALGARY, EDMONTON, HALIFAX, TORONTO, VANCOUVER

GRANT NORLING HAS BEEN SERVING THE OREGON MARKETOVER THE PAST EIGHT YEARS AT PGPV ALUATION AND HASDEVELOPED A SPECIALTY TEAM FOR APPRAISING RETAIL

PROPERTIES INCLUDING SINGLE-TENANTTRIPLE NET, STRIP, NEIGHBORHOOD,COMMUNITY AND SUB-REGIONAL

CENTERS. HIS TEAM ALSO WORKSON A VARIETY OF OTHER PROPERTY

TYPES INCLUDING: DENTAL CLINICS,MEDICAL OFFICES, MIXED-USE CENTERS,

SELF-STORAGE, MOBILE HOME PARKS AND HOTELS/MOTELS. CONTACT HIM

BY PHONE OR EMAIL LISTED BELOW.

________________________________

Download - Retail Market Overview - 1st Quarter 2009

Top Related