Retail rents fall 1.6% year over year, with national average at $14.65

Chicago -- Retail rents fell 1.6% year over year, and inched down 0.5% since the last quarter to the current national average of $14.65, according to Jones Lang LaSalle’s North America Year-end Retail Outlook. National retail vacancy levels posted a 0.1% quarter-over-quarter drop from 7.1% to 7.0%, with open-air centers at the high end with 10.9% vacancy, and general retail at the low end with 4.7%  vacancy.

New York and San Francisco continue to be the healthiest markets, with vacancy levels of 2.1% and 3.0%, respectively, the study found. Atlanta and Dallas show the largest vacancies at 10.2% and 9.1%, respectively.

Among the markets tracked, Chicago continues to report the highest absorption, with an impressive 2.0 million sq. ft. in third quarter 2011. Boston and Houston were not far behind with 1.98 and 1.75 million sq. ft, respectively. Only Atlanta showed negative net absorption this quarter with -352,909 sq. ft., though San Francisco's poor absorption continued into this quarter with only 19,942 sq. ft. absorbed due to store closings and relocations.

In other study highlights:

  • Rents fell 1.6% year over year and inching down 0.5% since the last quarter to the current national average of $14.65.
  • Investment sales volume of significant retail properties totaled $8.2 billion in third quarter 2011, down sharply from the second quarter, when data was inflated by the $9.2 billion Blackstone/Centro transaction.
  • All of the 18 regional markets that Jones Lang LaSalle tracks are currently tenant favorable and are likely to remain that way through at least the first half of 2012. Houston is the only market that is showing a significant rise in rental rates.

In the distressed market, total retail properties now stand at $28.7 billion, signaling that the sector is now 50% t worked out of its distress pool. Interestingly, distress made up a noticeably lower proportion of total sales this quarter at just 6% but workouts have cut almost $3.5 billion from the distress pool. Restructurings accounted for a significant portion of this, totaling $4.0 billion in the third quarter. New inflows to distress were also much lower this quarter, adding only $1.4 billion. Markets with the heaviest distress include Phoenix, Las Vegas and Chicago.

There continues to be wide geographic disparity in retail property sales, with the southeast region in the lead with $6.67 billion year to date. The West was second with $5.51 billion in transactions, followed by the Midwest ($5.25b), Mid-Atlantic ($4.25b), Northeast ($4.23b) and Southwest ($3.72b).

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