San Fernando Valley retail vacancy rates are expected to keep climbing and rents falling in 2009, according to the latest retail research report from Marcus & Millichap. The Valley’s retail vacancy rates have edged up 170 basis points to 4.6 percent in the past year. Asking rents have declined 0.4 percent to $32.74 per square foot, while effective rents have fallen 2.4 percent to $29.40. Softened vacancy rates have caused revenues to turn negative, said the report, and year over year revenues have pushed down 4.4 percent. Despite a slowdown in construction activity, reduced retail spending is forecast to push up vacancy 260 basis points to 6.4 percent this year. Asking rents are expected to fall 3.4 percent to $32.02 per square foot, and effective rents will drop 5.3 percent to $28.48. Year over year, builders have completed approximately 780,000 square feet of retail space in the San Fernando Valley. However, the only project brought online was the 169,000 square feet Lowe’s in Pacoima. Builders currently have 330,000 square feet. One of the largest proposed projects in the Valley retail market is the third phase of the Westfield Fashion Square in Sherman Oaks, which is expected to break ground later this year and would add 280,000 square feet of space. After 611,000 square feet of retail space came to market in 2008, construction activity is expected to slow to 289,000 square feet this year. During the past year, the recession has contributed to single tenant sales velocity easing 23 percent. In owners’ attempts to reduce marketing times, the median sales price has fallen to $360 per square foot. Sales velocity and asset valuations for multi-tenant assets have increased 27 percent, with the median price hovering at $398 per square foot. But deal flow has come to a standstill lately, said the report. Sales activity in the past six months accounted for 32 percent of the year’s closings. In the past two quarters, single tenant cap rates averaged in the mid 6 percent range, while multi-tenant assets will likely trade in the mid seven percent to low eight percent range by year end. Multi-tenant asset cap rates are currently in the low seven percent range. Marcus & Millichap said assets located along commuter corridors closer to downtown will garner interest from buyers who are drawn to the Valley’s future household growth projections. In the near term, sales velocity is expected to remain subdued, especially in outlying areas with above average foreclosure activity.
