Retail – Falling Vacancy and Rising Demand = Rent Growth

Employment growth and rising demand coupled with an empty pipeline of new product coming online means rent growth by the end of 2011.  Construction financing is becoming available, but lender standards are still much tougher than before 2008.  We’ll see some new supply coming, but not like 2003-2007 so CoStar expects vacancies to fall as low as 5% by 2014 and you know what that will do to rents.

Retail sales have already returned to 2007 levels with year over year growth in the 6% range over the last couple of quarters versus the historical range 4 ½ to 5%.  However, all bets are off if gas prices go to something like $6.00 a gallon.  Long term growth is of course dependant on job growth, continued high levels of retail sales, delivery of new supply and the general strength of the recovery. 

Leasing growth has also picked up with a projected 53 million square feet leased in just the first quarter.  Net absorption is expected to be 9 million square feet.  The increased activity and reduced supply will result in a first quarter vacancy rate of 7.2%

I think we’re in good shape through 2013, but after that it’s too far in the future to predict.  However, I will say that energy costs increases need to moderate for the recovery to continue.

CoStar News – Retail – Falling Vacancy and Rising Demand Should Bring Rent Growth