Price Edwards & Company is pleased to release it’s Oklahoma City 2011 Mid-Year Retail Market Summary.
THE RETAIL MARKET
Optimism returns, will the market follow? Retail in general and our market in particular reflect a number of factors that lead us to be optimistic about retail performance over the next year to 18 months. These factors include:
- As of the publication of this survey, the nation has had 10 months of rising retail sales (excluding car sales).
- Per the ICSC, overall retail sales rose 4.6 percent in 2010; the highest increase since 2006.
- The national retail vacancy rate is trending downward ending the first quarter at 7.1 percent.
- Nearly 65 million square feet of retail space was absorbed in 2010.
- Private sector hiring is up (state and local government layoffs are keeping national unemployment up).
- Oklahoma has the lowest unemployment in the nation.
- National incomes are beginning to grow again.
All of these bode well for retail, but concerns are still out there. Unemployment remains too high; the housing market in other parts of the country is still shaky; national debt and spending are a problem. But, don’t get lost in the day-to-day or month-to-month figures. The trends over time are what matter and most are positive to retail. The one area that concerns us more than any other is consumer confidence; it’s not where it needs to be for retail to take off. As a result, expect the next year to be characterized by uneven performance – periods of growth and positive news followed by slippage and negative news. But, when you look back over time, there will have been significant improvement in the market.
The outlook for local retail is even better:
- Overall market vacancy is down about .5 percent over the first half of the year.
- Newer well-located centers are almost all well-occupied. There is little space available for tenant expansions or new tenants coming to town.
- National tenants are becoming more active in both expanding within a market and to new markets.
Oklahoma City is home to one of the largest retail developments under construction in the country, the Horizon/CBL outlet mall.
- Last year, a significant number of big boxes were available; now, virtually all the newer boxes either have been leased or have deals pending. Even two of the four recently closed Borders & Ultimate Electronics have deals on the table.
- A number of national retailers new to Oklahoma City have recently signed leases; Whole Foods, Sunflower Market, Marco’s Pizza, 5 Guys Burgers, Anthropologie, Genghis Grill– to name a few. And others continue looking for space, including Dick’s Sporting Goods, California Pizza Kitchen, LA Fitness, Edward Watts Golf, Performance Bikes, Sprouts, Sam Moon, Von Maur department store, and there are others. Not all will ultimately come, but many will.
Two categories of tenants are making aggressive pushes into our market: fitness facilities and grocery stores. Gold’s Gym is opening three large facilities and a number of smaller satellite locations. LA Fitness is actively seeking locations as is Planet Fitness. After having a stagnant grocery market for the last 10 years or so, we are seeing a growing number of grocers look to our market for either expansion or new stores. Many are the new wave of specialty grocers. Everyone knows about the Whole Foods under construction at Classen Curve. Sunflower has signed a lease at 63rd and May and is seeking other locations. Sprouts continues to search for locations. Aldi plans to add several stores. Buy for Less is doing a fresh market concept in Edmond. Crest is planning more of its market stores after the success of the south May location. This activity will invigorate the grocery market and give shoppers greatly enhanced choices.
Our optimism is somewhat tempered by the sluggish performance of some local tenants, particularly in older more established shopping centers. While our survey shows significant strength in newer product, the last three years have been hard on the more local operators located in middle of the market locations. Consequently, market occupancy, which we expect to continue to increase, has not improved as fast as you might expect given the good things happening at the top of the market. The submarkets with the most of this type of product and tenants—Northwest, South, and Eastern OK County—are the areas most affected; their recovery will lag the overall market recovery.
A couple of notes: 1) Crossroads Mall has been removed from our survey. This reduces the size of the South submarket by 1.1 million s.f. Crossroad’s vacancy distorted the survey numbers and there is question as to whether it will remain retail use in the long-run. The property is expected to be sold in the next few months; we will add it back to the survey in the future if warranted. 2) the listed square footages of Westgate Marketplace in the West-Central submarket and Shoppes at Moore in the Moore-Norman submarket were adjusted. Both square footages were reduced to actual square footages from the planned square footage of the initial developments.
These changes reduced the total market size to 26.8 million square feet in 230 buildings of over 25,000 s.f. and are the reason for the negative absorption for the period. In addition, we track 12.4 million square feet of stand-alone buildings for a total market of $39.2 square feet.
Vacancy at mid-year declined to 10.5 percent. The year-end 2010 figure was 13.8 percent; if you adjust the year-end figure to make it comparable given the above noted changes, it was 11.0 percent, resulting in an improvement of .5 percent during the first half of 2011. Most of the improvement was due to the leasing of big box space; this increase in occupancy was partially offset by some additional vacancy in small shop space in older centers as noted above.
There continues to be a significant number of smaller strip centers in the market (under 25,000 s.f. in size). We would estimate there are easily 3 million square feet of these properties in the market.
Three significant construction projects started in the second half of 2010 are nearing completion: The Horizon/CBL Outlet Mall at I-40 and Council; the addition of Whole Foods to Classen Curve; and, the Target at Fritts Farm. All will open within the next few months.
A number of factors point toward the need for new development: limited availability in prime locations; national retailers becoming more active; new retailers looking at our market; and the overall health of our economy. These positive developments are counter-balanced by still difficult financing terms for developers; market rents that (for the time being) still favor tenants; and the lingering uncertainty in the national economy.
Because it’s easier to build on (and finance) success and because retailers want proven locations, development in 2011 will continue to be additions to existing projects. Expect to see expansions of the Shoppes at Moore, Midwest City Towne Center, and, possibly, the second phase of University North Park. A number of other ground-up projects are in the planning stages, both previously announced projects stalled by the downturn and new development. Even in good times development takes time, but, due to the reasons noted above, it takes even longer today and developers must have deeper pockets. Nonetheless, we would not be surprised by an announcement or two on new developments between now and the end of the year. The most likely locations: the Memorial Road corridor, east Edmond, and Midwest City.
To read the rest of the market analysis including a Sales Summary and a look at Downtown Oklahoma City Retail, please download the PDF from the Price Edwards & Company website.