The first half of 2018 saw very little change in the Twin Cities retail market. Vacancy and absorption rates have changed very little and there has only been a negative 7,000-square-foot change in absorption, meaning that the vacancy rate has remained around 6.2% in the Twin Cities market.
However, in the second half of 2018 and into early 2019, several large box spaces* will become vacant, adding a significant amount of new space to the market and pushing vacancy rates metro-wide significantly higher. Some of the most notable retailers who will be vacating dozens of metro area big boxes include: Herberger’s, Sears and Toys R Us.
While the vacancy rate will be significantly affected by these big box spaces becoming vacant, there is confidence that 2019 will bring in a number of new tenants backfilling these spaces and vacancy rates will drop back to near-current levels after the late 2018 and early 2019 hike.
Doubtless this spike in vacancy will have many weary sceptics questioning the staying power of brick-and-mortar retail in the e-commerce age. However, these large fluctuations in vacancy have happened in the past and every time this surge has brought with it new, exciting users to fill these vacancies.
For example, one year ago there were a number of large blocks that came available in the Twin Cities market due to the closing of Gordman's, Kmart and Gander Mountain, to name a few. The premier, Class A locations, those with high visibility or in well-traveled commerce centers, were quickly backfilled by other large retailers. Locally, examples of this Class A retail backfill include SCHEELS taking occupancy of the entire Sears in Eden Prairie Center, Lifetime Fitness taking the entire JCPenney space in Southdale mall and Burlington Coat Factory taking up the Sports Authority space at The Shoppes at Lyndale.
Class B locations were also backfilled, though at a slower rate, and unlike Class A space, were occupied by nontraditional users, specifically furniture stores, new-to-market fitness centers, gaming, fun or experiential users, or even in some cases faith-based organizations. Local Class B examples include: Xperience Fitness taking a number of vacated big box spaces, including the Gordman’s in Rosedale, At Home filling Kmart vacancies in both Blaine and Burnsville and Fun Lab taking the former Gander Mountain in Blaine.
It is forecasted that a similar amount of activity for newly vacated big box space will positively impact vacancy statistics this year, until at least the mid-point of 2019. Currently, 1.7 million square feet of vacant space in the Twin Cities metro is available and in the next year there will be another 1 million square feet of vacancy. 760,000 square feet has already been spoken for and will be absorbed by new users.
This vacancy and absorption trend is an age-old story that speaks to evolving consumer preferences, habits and expectations, not to the end of the box, but just a change to what’s inside it.
* For the purposes of this article, a big box vacancy is counted as 35,000 square feet contiguous or larger and all spaces are referred to as such that fit that criteria, regardless if the space is in a power center, regional mall or is a free-standing building.
Colliers International | Minneapolis - St. Paul
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