TAMPA, FL-The local retail vacancy rate is in danger of hitting 10% this year, with new space opening at the same time that existing centers are losing merchants. Landlords are facing similar challenges as tenants, with falling sales leading to rent erosion.

Overall retail vacancy in the Tampa Bay area finished the first quarter at 6.2%, with some submarkets such as south Hillsborough County and west Pasco County already in the 9% range, based on research by CB Richard Ellis. Community centers, which account for more than a third of the area's 71-million-square-foot inventory, have the highest vacancy at 8.7%.

Marcus & Millichap predicts in its latest retail report that Tampa Bay area vacancy will reach 10.3% this year because of declining demand, with asking rents dropping 6% to $14.41 per square foot. Rent decreases have been attributed to significant drops at properties in Pasco County, which has been particularly affected by the soft housing market.

Concessions have contributed to stabilization in current rents, which ended the first quarter at just under $16 per square foot, CBRE reports. "This recent rise in vacancy, landlords offering significant free rent and other concessions, have created the perfect storm for a tenant's market," the brokerage stated in its latest Tampa Bay retail report.

Even though local unemployment exceeded 10% in February, CBRE says many investors see opportunity as property values continue declining. In fact, Marcus & Millichap believes development-minded buyers may intensify searches for sites in paths of future population growth, particularly western Pasco County and the Southshore area of Hillsborough County.

"As Tampa and other major markets in Florida proceed into a period of diminished property performance, retailers and investors remain largely upbeat about the metro's long-term prospects," notes Bryn Merrey, regional manager of Marcus & Millichap's Tampa office. "Optimism is supported by the projected addition of more than 20,000 households annually over the next five years and the impact those new residents will have on retail space demand."

Cap rates for class A multi-tenant retail properties started the year at approximately 8%, with class B assets pushing toward 9%, according to Merrey. "Older assets in established trade areas with barriers to entry, such as portions of southern Pinellas or central Hillsborough counties, may receive the greatest attention in the months ahead," he says.

A total of 1.4 million square feet of new retail space is set to be completed this year, well below the 3.6 million square feet delivered areawide in 2008, Marcus & Millichap states. The largest projects are Cypress Creek Town Center, which will bring one million square feet to south Pasco County, and the 353,000-square-foot Ikea store just east of Downtown Tampa, scheduled to open May 6.