DC Retail Market: What Recession?

For starters, retail in the District has been chronically underserved and under-stored, Delta Associates' CEO Greg Leisch tells GlobeSt.com. The District has 8.5 square feet of retail per capita, compared to the national average of 23.4 square feet. "The area has chronically low vacancy rates--we had more give in the retail market than in other locations like Houston where the vacancy rate was already high when the recession began." In DC, the vacancy rate for retail was 2%-to-3% when the recession began, he says. Another factor has been the higher incomes in the DC-area, compared to other parts of the country, according to Leisch.

That said, retail in the DC-area did suffer some setbacks this year. Rental rates at grocery-anchored centers decreased 5.8% in 2009, after rising by 1.7% in 2008. Metro-wide average in-line tenant rents were $31.77 per square foot at year-end 2009. In suburban Maryland rents were $32.25 per square foot, a 4.8% decline from one year ago; and in Northern Virginia rents were $31.29 per square foot, down 6.6% from year-end 2008.

It should also be taken into account that grocery anchored retail tends to perform better than other retail products, Sandy Paul, report author, tells GlobeSt.com. The relatively mild setback coupled with Delta Associates' observation that the recession ended sooner in the District--in Q1--compared to the rest of the nation, means retail is poised for a comeback.

"I think we will see retail grow in 2010 by a modest amount and by 2011 we will start to see some real traction in the industry," Paul says. Unfortunately, the same correlation cannot be made for other real estate asset classes, Leisch says. "Commercial real estate is a lagging indicator by about 18 months. In some cases the DC-area's [commercial real estate] market will lag by as much as four years because there has been so much overbuilding."