Washington region still attractive when it comes to retailers wanting space

May 18, 2014

From big box to boutique, and from national retailer to local, shopkeepers have been filling up space in greater Washington. Overall, the region absorbed a net 3.5 million square feet of retail space over the past 12 months for a 1.5 percent demand growth rate, compared with the 0.9 percent U.S. average.

This market remains near the top of retailers’ wish lists over the past year because of its strong demographics. The region boasts a high concentration (29 percent compared with the 27 percent U.S. average) of prime spenders (35-54-year-olds), who drive consumer demand.

While leasing by big retail tenants has been uneven across the country, it has continued to move the needle in the Washington market. Recent activity includes:

Whole Foods signed a lease in February for 132,000 square feet at a planned shopping center in Riverdale Park in Prince George’s County.

The Shops at Georgetown Park, a mall that slowly emptied over the previous decade, scored more than 100,000 square feet of new leases over the past year after its owner, Vornado/Charles E. Smith, reconfigured the center from a traditional mall format to one that accommodates 10 to 12 large stores. Shoe purveyor DSW joined the tenant roster in April, and Forever 21 plans to open there in the fall.

Roughly 75 percent of the 320,000-square-foot retail portion at Downtown Crown, a master-planned community under construction in Gaithersburg, is already leased, including a 54,000 square foot Harris Teeter.

Retailers also have been seeking out space in high-growth suburbs and in in-fill locations such as the Tysons West development in Tysons Corner and the Mosaic District in Merrifield. With the exception of a near-term, demand-induced dip in vacancies, retail occupancies are expected to remain relatively stable over the next few years, with new supply meeting demand.

However, the rise in vacancies could be more dramatic if more developers start filling new space by cannibalizing existing tenants at the expense of older suburban and exurban centers.

In contrast, retail centers located in denser urban locations and near Metro stations should maintain high occupancy thanks to their attractiveness for retailers and lack of developable sites.

Maeve Gallagher is a real estate economist at CoStar Group.

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