No matter how the economy is doing, we all have to eat. As a result, grocery-anchored shopping centers tend to maintain greater stability than other retail property types during the economy’s ups and downs. In the Washington area, 55.8 million square feet of grocery-anchored retail space — almost half of the total retail inventory — is located in 317 shopping centers. Based on Delta Associates’ annual survey of the region’s grocery-anchored shopping center owners, vacancies declined and rents rose in 2012.
The metro-wide vacancy rate for grocery-anchored shopping centers fell to 4.9 percent at year-end 2012, from 5.5 percent at year-end 2011. The grocery-anchored shopping center vacancy rate in suburban Maryland declined to 4.5 percent at year-end 2012, from 5.6 percent the year before. Northern Virginia posted a 5.3 percent vacancy rate at year-end 2012, slightly down from 5.5 percent in 2011.
The core submarkets (the District, Arlington and Alexandria) and inner ring (Fairfax, Montgomery and Prince George’s counties) experienced a 70-basis-point decline in vacancies over the past year. The vacancy rates for the core (at 4.3 percent) and inner ring (at 4.1 percent) each were below the metropolitan rate of 4.9 percent at year-end 2012. This compares to the outer ring (Loudoun and Prince William counties), which experienced a 60-basis-point decline in vacancy to 7.3 percent at year-end 2012.
Rental rates at grocery-anchored centers increased 1.2 percent in 2012, after rising 2.1 percent in 2011. Rents averaged $32.04 per square foot at the end of 2012, compared with $31.65 per square foot at the end of 2011. Suburban Maryland rents were $32.30 per square foot, a 1.4 percent rise from the end of 2011. Northern Virginia rents were $31.47 a square foot, up 1.0 percent from year-end 2011.
The core submarkets experienced a 2.3 percent rise in asking rents during 2012, as shopkeepers sought to remain in the core. Also, this area has limited availability, with just under 200,000 square feet of available space on the market. The inner and outer rings experienced rent increases at a less robust pace, 0.9 percent and 1.6 percent respectively, as these submarkets have less demand and a greater amount of available space. Of note, despite steady demand, the inner ring still has the most available space at 1.6 million square feet.
Overall, newer grocery-anchored shopping centers outperformed market averages during 2012. Centers built after 1999 in the Washington area posted an average 4.6 percent vacancy rate at the end of 2012, a 190-basis-point decline during the past year. Centers built in 1999 or before held a 5.0 percent at the same time, a 20-basis-point decline from one year ago.
We expect the region’s retail market to continue its recovery during 2013. The fiscal cliff debate slowed consumer spending in 2012; greater certainty on taxes and the federal budget should spur additional spending in 2013. In addition, new retailers likely will enter the Washington area market to capitalize on the region’s nation-pacing household incomes. As demand improves, we expect asking rents to rise by approximately 2.0 percent to 3.0 percent during 2013. We expect newer centers in the core and inner ring submarkets to rebound at a faster clip compared to the outer ring submarkets, as outlets in these areas were best able to keep tenants during the downturn and also lure them from Class B centers.
Ricky Bierbower is an associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.