Of the four major commercial property types — apartment, office, retail and warehouse — retail is expected to experience the lowest vacancy and biggest rent increases in the Washington region in 2015.
Unlike its office and apartment counterparts, retail property vacancy rates are projected to fall over the course of the year, likely reaching their lowest levels since 2008.
Also, robust rent growth for available retail space, which emerged in the second half of last year, is expected to continue through this year, averaging over 6 percent year-over-year for the next four quarters.
Washington’s retail sector continues to benefit from the region’s relatively high median household incomes compared with the U.S. median income, which helps to drive spending. Retail supply and demand fundamentals are also strong because there has been very little shopping center construction since the end of the recession. While the region has been deluged with new apartment buildings for the past couple of years, retail development has been significantly lower than the historical average for this region.
The few projects that have broken ground have been largely successful. Towne Center at Laurel recently opened its doors on the site of the old Laurel Mall, which closed in 2012, and was 85 percent leased at the time of opening, according to the developer. Springfield Town Center has reopened after two years of renovations with a revamped tenant roster, including a movie theater and more attractive dining options. Dulles Landing, a 369,000-square-foot shopping center off Route 50, is the largest retail project under construction in the metro area.
Commercial real estate investors have taken notice. Average retail property prices per square foot on a four-quarter rolling basis jumped 48 percent from the end of 2013 to the end of 2014, the highest gain of any property type.
Exemplifying the strength of the top tier of the market, the Shops at Georgetown Park (including 34,000 square feet of office space) was sold in August of last year for $272.5 million, or $894 per square foot, after the center was extensively renovated and reconfigured following a foreclosure sale in 2010. Even suburban assets are selling well. Plaza America Shopping Center in Reston sold in June 2014 for $97.5 million, almost double what the seller paid in 2010.
Ethan Vaisman is a real estate economist for CoStar in Washington.
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