The Washington metropolitan area has the lowest shopping center vacancy rate among large markets. Overall vacancy for all types of shopping centers was 4.9 percent in the region at the end of the first three months of 2013, down from 5.8 percent one year earlier. This compares favorably to the national rate of 8.9 percent at March 2013.

The communities within the region’s core, including the District, Arlington and Alexandria, held a 3.8 percent vacancy rate for all types of shopping centers at the end of the first quarter. The core holds a lower vacancy rate compared to submarkets located within the inner and outer suburbs. Although the outer suburbs collectively hold the highest vacancy rate of the three sectors, at 6.2 percent at March, this area experienced the steepest decline in vacancy over the past year. Although tenants continue to show preference for retail space located closer to the center of this metropolitan area, demand remains steady for well-located space in the outer suburbs. Of note, the decline in vacancy within the core was in large part because of a series of smaller leases.

The majority of leases signed in the Washington area during the first quarter were food establishments (both sit-down and fast food), grocers, personal services and gyms. We expect most of the new local apartment product coming to market over the next 18 months to be concentrated in emerging neighborhoods, such as Capitol Riverfront, which should continue to attract retailers. The growing demand for retail goods and services from new residents should support the expected growth in retail space. For example, as of year-end 2012, Capitol Riverfront had just under 224,000 square feet of existing retail space. Once built out, this submarket will have nearly 900,000 square feet of retail space.

Owners reposition malls

As shoppers and retailers continue to show interest in newer centers closer to the core, some owners of older, underperforming malls are looking to reposition their properties to compete. After 33 years, Laurel Mall closed during 2012 for demolition. The developer, Greenberg Gibbons, is currently turning the site into a mixed-use development called Towne Centre at Laurel. The project, scheduled to be completed by late 2014, will include 435 residential units and 400,000 square feet of retail, including a grocery store and a movie theater.

Demolition of Springfield Mall also started during 2012. Vornado, the owner, plans to transform the site into a mixed-use development called Springfield Town Center. The project, which is to be finished during the summer of 2014, will include 700,000 square feet of retail, restaurants, a fitness center and a movie theater.

Retail market outlook

As consumers regain confidence in the local economy, retail spending should pick up, which will likely keep the region’s vacancy rate in check. Notwithstanding the threat of sequestration to consumer spending, we expect the vacancy rate for shopping centers to remain low for the balance of 2013, as new retailers enter the market and existing retailers look to expand. We look to restaurants, grocers, and gyms to remain active in the market— seeking newer space closer to the core. As demand improves, we expect asking rents to rise by approximately 2 percent to 3 percent during 2013.

Sandy Paul is executive vice president at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit