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Editor's Notes: Retail ruts and rebounds

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Robin Doussard
Monday, March 15, 2010

The good news about the Portland metro area’s dismal retail scene is that vacancies will rise only slightly this year. The bad news isn’t too hard to figure out: high unemployment will continue to keep the lid on any robust recovery. “The outlook for 2010 is subdued,” says real estate expert Tony Cassie. “We’re starting to come out of it, but we’re not going to really come out of it until job numbers improve.”

And that could take until next year. A recent report by national real estate investment services firm Marcus & Millichap pointed out that employers were expected to only slightly expand payrolls by 1.4% in 2010, adding 13,500 jobs versus the 70,000 that were lost over the past two years. That great destruction of jobs “will keep foot traffic low and delay meaningful leasing activity,” according to the report.

“It’s going to be a challenging environment for retail,” says Cassie, the regional manager of Marcus & Millichap’s Portland office.

Yet the Portland area surprisingly moved up six places to No. 14 in the national retail index, a snapshot analysis that ranks 44 retail markets based on 12-month future supply and demand indicators. No. 1 was Washington, D.C., because of low vacancy rates and healthy job growth.

“One of the things that keeps Portland strong is that we are in a supply-constrained market because of the urban growth boundary. It prevents sprawl. It keeps the supply in check, unlike other markets,” Cassie says. “But it’s a double-edge sword. It prevents development but keeps supply in check, which means that if things get bad, we don’t have a huge vacancy issue. We are still under 10% for vacancies metro-wide.” The downtown core’s vacancy rate is between 6% and 8%. This statistic is interesting to my windshield-view of the downtown area. From where I sit (at approximately SW Alder and Broadway), I see a lot of empty storefronts, so this low vacancy rate is counter to my daily experience with downtown. But hey, I'll take the good news.

Cassie also says that the market can expect to see less discounting on rents. “The year ahead is not a whole lot different than 2009. Meaningful new job creation is not on the horizon. That presents headwinds for retailers, which means there will be challenges for landlords. A lot of landlords and retailers have already engaged in [negotiations], so rent is probably stabilized.”

The report also notes that spending will be most tepid in retail corridors east of I-205, “largely due to deep cuts in the area’s blue-collar work force" and retail recovery will be particularly slow in the Vancouver/Clark County area. It noted that completion of retail construction projects will drop metro-wide this year to the lowest level since 1998.

Late last week, the government reported that U.S. retail sales for February rose solidly, raising hopes that the economy would get a lift from more robust spending.

With unemployment so high, the consumer is still cautious, but the report was a small break in the gloom.

“Everyone is entrenched and waiting for the sun to come out,” says Cassie.

Robin Doussard is editor of Oregon Business.

 

Comments   

 
John Craig
0 #1 Portland's vast potentialJohn Craig 2010-03-23 08:28:30
Hi Robin,
Some may see gloom, but our company -- Planet Fitness -- is bullish on Portland. To prove it, we're holding a Discovery Day for prospective franchisees on Wed the 31st at the Benson Hotel, 10am to 1pm. Here's the skinny on Planet Fitness: We're a gym franchise with 320 locations in 36 states, and we've scouted lots of attractive retail locations in Portland (as well as Eugene and Salem.) It's a beautiful area with an active population, and we think it's prime territory for our low-price concept. Really, we're looking for a few folks who can take the ball and run with it. People can registeer to attend our event at the Benson at www.DiscoverPlanetFitness.com.
Regards, John
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Robin Doussard
0 #2 Update: Saks stores shutRobin Doussard 2010-03-23 12:44:31
The two Saks Fifth Avenue stores in Pioneer Place Mall in Portland will shut down soon, leaving behind 100 jobs and a total of about 83,000 square feet of retail space.

The company said the men's store will close April 25 and the main store will close by July 31. The Oregonian reported last December that the men's store would close to make way for Swedish chain H&M.

That's another blow to downtown and another hole that won't be easily patched in the ragged retail economy.
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