Study Indicates Retail Absorption Rate on the Rise

According to the study, the 2003 Retail Market Report for Eastern Massachusetts/Greater Boston, the market grew by 1% or 1.6 million sf over the past year. But thanks to a 2.7-million sf drop in the amount of vacant space, the market had a 2.8% absorption rate or 4.3 million sf.

The report focuses on changes between the third quarter of 2001 and the third quarter of 2002 and includes 189 cities and towns in Eastern Massachusetts/Greater Boston. The region experienced a 21% drop in the amount of vacant space, with the vacancy rate dropping from 8.2% to 6.5%. Of that reduction, 1.2 million sf was attributable to the leasing by Kohl's, Target and Wal-Mart of space vacated by discount retailer Bradlees.

Kohl's had the most new square footage in the area with 1.2 million sf. With 37 new locations, Curves for Women led the way in number of stores. Service Merchandise closed the greatest amount of square footage, and Lechter's closed the greatest number of stores.

"We also saw expansion in the building materials category, due to the addition of Lowe's Home Improvement Warehouse and Home Depot locations. In terms of number of stores, restaurants and other eating places led the way with a net gain of 118 new establishments," notes Tami Strauss, Finard & Company's research manager

William J. Beckeman, a partner at Finard & Co. points out that the past year's changes seem to "defy conventional wisdom in many respects." He says that consumers helped to keep the economy afloat and limited "fallout" among retailers. He attributes this to "historic low interest rates and increasing home values" which he says "buoyed consumers, affording many the opportunity to tap into their home equity for purchases. Low interest rates also aided retailers pursuing capital-intensive new store openings."

According to the report, the outlook for the next year indicates that there will be more belt-tightening among consumers. Also Beckeman predicts that while many Ames locations--which went bankrupt last year--will be re-occupied, the pace of retenanting may be slower than for prior chain failures. Beckemam also anticipates that Kmart will close additional stores if not liquidate altogether and additional under-performing grocery stores will close as new development continues. Beckeman believes that the vacancy rate will rise modestly and rental rates will remain firm or even rise slightly in better retail locations, but that trend won't continue in shopping centers with weak anchors.