LOS ANGELES—The retail market experiencedmodest absorption growth in 1Q15, according to the retail quarterreport from Lee & Associates. In fact,absorption was the lowest in the last eight quarters. However,vacancy rates in urban core markets are at an all-time low,illustrating the limited supply and increasing demand for retailproduct. These fundamentals could lead to retail development inthese core markets, which we have yet to see in this sector out ofthe recovery.

“The vacancy rates are historically low, and I think they arestrengthened by low vacancy rates in urban core markets,”Jeff Rinkov, CEO of Lee & Associates, tellsGlobeSt.com. “We have seen retail construction kind of lag behindthe demand. So, I believe that as construction picks up, we willstart to see better absorption. Retail has kind of been the moremethodical, slow growth sector on the rent side as well. We haveseen what I would consider more moderate rent growth, but I expectto see improvement, especially as new class-A product isdelivered.” Rinkov has seen developers with “strong resumes” beginto develop retail projects in core urban markets, but says thatoutside of those markets, development continues to lag.

During the quarter, national retail saw a mere 15.4 millionsquare feet in absorption, compared with 23.59 million square feetabsorbed in the 1Q14 and 34.91 million square feet absorbed in4Q14. Still, the national retail market had a 6% vacancy rate.Shopping centers had the highest vacancy rates atjust over 9%, while general retail had the lowest of the retailproperty types, with a national vacancy rate that hovers just above4%. Of the eight individual markets the report reviews indepth—Orange County, L.A. North, San Diego, Dallas, St. Louis,Atlanta, Charleston and Manhattan—vacancy rates fluctuated. OrangeCounty, Dallas, Atlanta and Manhattan were the only markets withdeclining vacancies, while L.A. North and St. Louis vacancy ratesincreased. The remaining markets were flat.