Retail Market Outlook for 2007

According to a recent study done by the National Association of Realtors, consumer confidence is rising at a fairly slow pace, but a sluggish housing market and economic concerns are dampening consumer spending and, possibly, demand for retail space.

Vacancy rates in the retail sector will probably slip to 8.1 percent in the fourth quarter of 2007 from 8.2 percent in the same quarter last year. Average retail rent is expected to grow 1.1 percent this year, following a 3.9 percent gain in 2006. Retail markets with the lowest vacancies include Orange County; San Francisco; San Jose, Calif.; Las Vegas; Honolulu and Miami, all with vacancy rates of 4.4 percent or less. Net absorption of retail space in 54 tracked markets is projected at 19.9 million square feet in 2007, up from 8.4 million in 2006.

Retail transaction volume declined 7 percent in 2006 to a total of $46.9 billion; much of the decline was in regional shopping centers. However, unanchored strip centers, free-standing drug stores and big box retail centers saw large gains. At the same time, pricing for retail space rose 13 percent in 2006 to an average of $168 per square foot.