Retail space occupancy improving across region

Economists, real estate brokers and mall managers agree that the retail space occupancy rate is improving.

Local shopping malls are seeing decreasing vacancies, said Kathy Deck, director of the Center for Business and Economic Research at the Sam M. Walton College at the University of Arkansas.

According to second quarter results in 2012 for Class A retail space, Bentonville has a 16.9% vacancy rate, Fayetteville has a 9.9% vacancy rate and Rogers has an 8.4% vacancy rate.

According to the SNL Real Estate report, “Reis Inc. reported that regional mall vacancy rates in the U.S. fell to 8.7% in the third quarter, down from the 8.9% vacancy rate posted at the end of the second quarter, which could bode well for the regional mall space as a whole.”

Sometimes the new tenants are non-traditional for retail space such as classrooms or gymnastics schools, Deck said. “(The shopping center managers) can’t afford to have the space empty,” she said.

Alan Cole, CCIM Principal at Collier’s International, agreed that there has been an increase in activity among real estate vacancies.

“We’ve been seeing a resurgence in activity since 2010,” he said, adding that some discount companies were able to take advantage of vacancies caused by the recession and move into space that had previously been occupied by higher-cost tenants.

“The economy in Northwest Arkansas started improving and people were going back to work. With that, retailers started feeling better about expanding again,” Cole said. “The better spaces in the market started filling in. We’re in a point in NWA where existing space is mostly taken. As a retail broker, we’re seeing that there’s more interest than space available.”

It’s not just the Class A retail occupancy rates that are improving

“Well-located strip centers are going to do well. The larger developments are doing well,” Cole continued. “We’re starting to see development activity. There is still no speculative development in the market. Literally zero on the retail side. But we’re nearing the point where we need space to come up because retailers are looking for homes.”

One thing that must happen before development gets back into full swing is landowners will “have to be more realistic on land prices. They are still inflated,” he said.

New larger stores attract smaller stores and restaurants to come near them, he said. For example, the new Cabela’s in Rogers is a unique store that will attract a new audience. That could lead to even more interest in stores building in that area.

Cole also agreed that non-traditional uses became more prevalent during the economic downturn but that he expects that to change somewhat as the economy improves and shopping centers are able to find tenants who can afford higher rents.

David Erstine, partner at Sage Partners, said most retail centers and neighborhood centers have “single digit vacancy rates, which is strong. The market is (about) 7.9%.”

To some degree, the retail occupancy rates are deceptive because of the non-traditional uses, he said.

Companies such as Goodwill have taken over several large vacant retail spaces in Fayetteville, Bentonville and Bella Vista.

“Goodwill is absorbing a lot of space in Arkansas and Northwest Arkansas,” he said. “With the market, people are looking at ways to get a costs savings on anything they buy and Goodwill provides that.”

Other companies are taking advantage of vacancies, like Fresh Market that moved into the old Border’s Bookstore in the Pinnacle Hills Promenade.

Erstine said that much of the growth seems to be service providers and restaurants. This is partially because more people are making online purchases instead of going to brick and mortar stores to purchase dry goods.

MALL PERSPECTIVE
Real estate brokers largely do not deal with shopping malls because the companies that own those malls work with their own leasing agents. Representatives from large shopping centers in Rogers, Fort Smith and Fayetteville agree that retail occupancy is improving.

They look at their numbers in terms of occupancy, not vacancy. In those terms, the higher the number, the better.

The area mall with the lowest occupancy rate is still celebrating because business is showing noticeable improvements. Frisco Station Mall in Rogers has an estimated 80% occupancy rate, said General Manager Frank Cooper. Many of the tenants are not traditional retail stores but Frisco has found new life in leasing to nontraditional tenants who need office space.

There are several new tenants including a new hair salon, massage studio, coffee shop, real estate office, a personal gym, and an indoor skate park that offers custom maintenance and design on bikes and skateboards. Other tenants, such as Tuesday Morning, recently moved to new locations within the mall that drastically increases their floor space.

“Our philosophy that is driving new tenants is looking for national, regional and local brands and companies,” he said.

There are a large number of companies that are bringing in employees and other foot traffic that will increase the interest in the center.

“Overall we take a warm approach to people wanting to come in and open a business,” he said. “We work hand-in-hand with them.”

While much of the retail traffic has moved to the I-540 corridor, Cooper said that the Frisco Station Mall still offers a great location that has easy access.

“We provide a secure and well-maintained facility,” he said. “People can operate a business here more effectively and efficiently.”

Most other area shopping centers and malls have an estimated 90% occupancy rate or better.

“We all know that Northwest Arkansas is just popping,” said Brenda Majors, marking manager at the Promenade. 

"Our leasing agency) looks at what retail operator best fits our demographic and what’s best for the market.”

She said unique retailers are generally a good fit at Pinnacle Promenade.

When a vacancy comes up, Majors says  it’s because the retailer made the decision that it was not a good fit for them but that a new retailer is usually waiting in the wing. For example, Clark’s Shoes is going in the Cache space, she said. And Houlihan’s also just moved into the old Granite City building.