Landlords Feel Troubled Retailers' Pain

Local Strip Malls Hit by Increase In Vacancy Rates

After a decade spent developing a shopping center at the Metro station in Hyattsville, Taylor Development and Land Co. seemed to have put the hardest work behind it.

Then tenants started disappearing.

Mattress Discounters closed in November, followed by Circuit City in March. The bankrupt retailers left a gaping hole. And that's not all: The firm that leased office space on the top level of the development vacated, too.

"It just devastates developers like me," said Harvey Taylor, 72, president of the company that bears his name.

Many tenants are hurting, and replacing the bankrupt can be difficult, partly because "the tenants that are strong take advantage of the situation by asking for rent reductions and all sorts of goodies," Taylor said.

"I was looking to retire," Taylor said. "That's not going to happen."

As the recession decimates retailers, the ripple effects are taking a toll on Washington-area landlords.

In suburban Maryland, the retail vacancy rate rose to 5.4 percent as of Dec. 31, from 3.4 percent a year earlier, according to Reis Inc., which gathers data on commercial real estate. The year-end vacancy rate was the highest since 1998. The amount of vacant space in suburban Maryland strip shopping centers rose to 1.7 million square feet vacant at the end of last year from 1.1 million a year earlier, chiefly because stores closed, Reis reported.

In suburban Virginia, the vacancy rate at strip shopping centers rose to 4.7 percent from 2.6 percent a year earlier, bringing it to a level unmatched since 2001. The amount of vacant space nearly doubled, to 1.9 million square feet from 995,000, though there was some improvement during the fourth quarter.

For landlords, the local picture is still much better than the national one. Nationally, the retail vacancy rate climbed to 9.5 percent in the first quarter of this year from 8.9 percent at year-end, Reis reported.

The Reis numbers don't include enclosed shopping malls, and the firm doesn't track the District, where much of the retail is on the ground floors of office buildings.

Retailers that have been going out of business or closing stores range from some of the biggest and boxiest, like Circuit City, to specialty markets like Balducci's, where cold-water lobster tails that regularly go for $50.99 per pound were on sale last week for $32.99 per pound. Balducci's is vacating a site in Northwest Washington that it and its predecessor, Sutton Place Gourmet, have occupied for three decades.