Twin Cities Retail Market Holding up Despite Slowdown

MINNEAPOLIS -Despite new development and a slowing economy, retailexperts are predicting vacancy rates at Twin Citiesshopping centers will go down over the next year.Russell McGinty, senior vices president of Grubb &Ellis, argues that all things considered, the TwinCities retail sector is in surprisingly good shape. Heargues that the economy is in a slowdown, not arecession, as retailers are not seeing negative salescomparisons and vacancy rates at shopping malls remainlow at 6.22 percent at mid-year. What’s more, he’sprojecting that vacancy rates will decline to 6.05percent by the middle of next year as 1.4 million sfof space will be absorbed over the next year.John Johannson, vice president at Welsh Cos., is moreoptimistic about vacancy rates, but mostly because hesees a major slowdown in new development. He seesvacancy rates dropping to 5.67 percent, although inlarge part that’s because he thinks the pace of newdevelopment will slow considerably — he expects about651,000 sf will be added to the market, less than halfof what McGinty is expecting.As for shopping center trends, Johannson points out amove to the lifestyle center, which combines elementsof the enclosed mall and the strip center by offeringpublic areas, high architectural standards and anappeal to higher end consumers. Another emergingtrend, he says, is the combined grocery store anddiscount department store as SuperTarget and Wal-Martsupercenters are starting to pop up around the TwinCities.Although Twin Cities retailers have seen salesdeclined from a 7 percent to 8 percent year-over-yeargrowth to about 3 percent, consumer spending remainsstrong, McGinty says. Household incomes are rising,although at a slower pace,The market is not overbuilt, as new development isincreasing the market at a pace of about 4.2 percent ayear — is in sync with demand for space. Both McGintyand Johannson agree that leasing rates are risingexcept for poorly located sites. They expect that theaverage net leasing rate will hit $17.79/sf (McGinty)or $17.83/sf (Johannson) up from $17.31/sf.