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Small Retail Property Rent Drops Steeper than Larger Property Declines
Tuesday, April 14, 2009
Commercial Real Estate Direct Staff Report

Asking rents at small retail properties fell a whopping 3.4 percent in the first quarter to a national average of $17.85/sf, according to Boxwood Means Inc. Rents are now down 9.3 percent from a year ago.

The first-quarter decline is the greatest since at least 2006 and a clear indication that properties with less than 50,000 square feet are struggling much more than larger retail facilities, according to the Stamford, Conn., research firm. The properties covered, which range from strip centers to stand-alone shops, are each under 50,000 sf and average 13,500 sf.

Shopping malls, meanwhile, saw a 1.2 percent decline, to $39.99/sf, in their first-quarter asking rents, according to Reis Inc., while shopping centers saw a 60 basis point drop to $19.04/sf.

While the performance of larger shopping centers and malls has been hurt by downsizing among national retail tenants, smaller retail properties typically lease to local retailers. Those tenants are less well-capitalized and even more likely to scale back or close during economic downturns, said Randy Fuchs, principal of Boxwood.

Owners of small properties are also less well-capitalized than their larger property counterparts. The retail properties covered by the Boxwood research typically trade hands for less than $10 million.

Within the small retail-property sector, street properties - often tenanted by the sellers of higher-priced, specialty goods and services - have suffered the largest rent drop. Their average asking rent of $17.85/sf dropped 3.7 percent in the first quarter and is down 10.2 percent from a year ago.

Shopping centers' average asking rent of $16.36/sf was down 2.9 percent for the quarter and 8.6 percent for the year.

Fuchs noted that small retail-property performance typically tracks the performance of local housing markets.

Florida, which has among the weakest housing markets, is also home to some of the worst-performing small retail markets. Fort Meyers recorded the steepest quarterly drop in street retail rents at 12.7 percent, while the Melbourne/Palm Bay and Sarasota markets recorded the sharpest shopping center rental declines at 7.2 percent and 6 percent, respectively.

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