Metro Jackson retail vacancies, leasing rates rose in 2012

Though they can still see signs of economic distress, metro Jackson’s commercial real estate professionals say they have gained new confidence in the performance and potential of the area’s retail sector

Some leasing agents credit a slow but steady return of metro Jackson’s housing market. Still others cite retailers that have learned to be more efficient with their space and to operate consistently within the market segment for which their businesses were designed.

The segments “have performed almost consistently within their demographics,” said veteran Jackson retail real estate professional Richard Ridgway.

The result has been confidence among tenants in signing new leases, expanding or even chasing new markets deemed to have a retailer’s preferred demographics, Ridgway said.

“Lots of new leasing is going on,” he added, and noted that with signs of an improving economy, even more big box stores are giving the metro market a look.

And retail tenants on average are paying more, reports commercial real estate data collector REIS Inc.

Metro Jackson vacancies ended 2012 a half percentage point higher than the previous year but asking rents per square foot climbed 1.5 percentage points, according to REIS.

The one-half percentage point increase in asking rents in last year’s fourth quarter marked four consecutive quarters of increased lease rates, REIS reports. The run of consecutive quarters of higher asking rents would have reached seven if not for the fourth quarter of 2011, when rates neither increased nor decreased.

renaissanceThe last negative period on lease rates came in the first quarter of 2011, the last of a string of negative quarters going back to the second quarter of 2010.

Ridgway said he thinks Flowood’s asking rents are some of the highest in the region and possibly state. “But Madison and Ridgeland are also robust,” said Ridgway, who recently merged his firm Ridgway Lane & Associates into CB Richard Ellis Memphis.

Reports are that the Mattiace Company is poised to begin work on phase two of the Renaissance at Highland Colony in Ridgeland, having made progress in lining up financing. Though the company did not return calls seeking comment, for the better part of a year it has been pre-leasing for the second phase of the open-air shopping mall situated at the northwest corner of Interstate 55 and Old Agency Road.

Ridgway said indications are that metro shoppers in the first months of this year began pulling back from the uptick in purchasing they showed in 2012. The counter balance, though, is the upward movement of the metro housing market, he added. “That’s going to pick back up again,” and with it will come the new rooftops to support current and future retail, Ridgway said.

“When housing starts are being done it starts circulating in the economy.”

Brian Estes, an agent with Commercial Property One in Ridgeland, said he has seen signs the long wait for a housing resurgence is ending. “Residential is really happening,” he said. “Fondren is still strong and Gluckstadt is just booming right now. Just take a ride. A lot of new buildings are being built. My understanding is that they are selling well.”

Estes said he thinks the continued increase in rooftops near Renaissance at Colony Park is driving the Mattice Company’s pre-leasing of phase two. “It’ll lease up. I just don’t know how fast,” he said.

In the meantime, retail will follow the residential growth occurring in northern Madison County, Estes predicted.

“Whether that is 16 months or 12 months, we’ll start seeing a little bit larger big boxes get out there,” he said, predicting a Kroger or other larger supermarket could join the new WalMart that is going up north of Gluckstadt.

With 16.3 percent of its retail space still vacant, metro Jackson’s retail sector must lease up a lot of space before it returns to 12.8 percent vacancy REIS recorded for the metro market in the second quarter of 2008. Each quarter since then has shown either an increase in vacancy or no decrease in vacancy. Totals for each year since 2008 have also reflected increased vacancies, with 2008 ending at 13 percent, 2009 at 14.1 percent, 2010 at 15.5 percent and 2011 at 15.8 percent.

The absence of vacancy decline has not stopped customary retail migration patterns, according to Ridgway and other commercial agents in the metro market. “We’re seeing the out-migration to the next exit on the interstate,” Ridgway said. “You see the same thing in Dallas and other places. This is the way retail does.”

Justin Davis, formerly of the Shopping Center Group but now principal of Tupelo’s Southern Retail Properties, said he sees a realignment underway in the Jackson retail market.

Both Davis and Estes see County Line Road becoming more of a neighborhood center shopping destination. “It will continue to attract more price conscious retailers,” said Davis, who has leased retail properties in Jackson for a number of years. “There will always be a niche for it.”

In the future, County Line Road will have fewer big boxes and more small places designed for convenience shopping, Estates predicted.

For one, “people just perceive it to be a pain,” he said of the often-jammed roadway. The other change factor is a more modest income demographic from a decade or so ago, Estes added.

“What you are going to see is a changing of tenants. The tenants are following the income levels of the apartments” in the vicinity of County Line Road.

While County Line continues its transition, Davis expects a realignment of sorts will continue along Northside Drive and Highland Village area — both of which he described as “very healthy trade areas,” especially with the pending arrival of Whole Foods in Highland Village.

Estes, meanwhile, said he is betting on more in-fill retail in markets such as Fondren. “If you need 1,500 square feet of retail, you won’t find it in Fondren,” he said.

He said he is equally bullish over the future of neighborhood centers. “There’s been a lot of absorption n our neighborhood centers,” he said, citing the leasing his firm manages. “Some of the larger national tenants are still looking at larger spaces. Lots of mom-and-pops are moving around.”

Alternative uses such as fitness clubs are becoming more common in neighborhood centers as well, he said. “We just leased to Planet Fitness in Ridgeland.”

Dollar stores such as Fred’s and Dollar General continue to flourish, according to Estes. “A lot of the focus is on under-served areas — the places with very little competition” for food products and household staples.

Fred’s has taken the dollar store concept a step further by growing its stores to an average 24,000 square feet and adding pharmacies in some of them, Estes said. “Fred’s is becoming a mini version of Walmart,” he noted, with the added advantage of convenience. “They don’t need to go to a big shopping center. They can pull into Fred’s and get what they need.”

Given the likelihood that the metro market’s housing market will return to its former good health, retail leasing rates will continue to rise and new retail will be built, CB Richard Ellis’ Ridgway said the months ahead may help he and others in his profession leave a not-so-pleasant recent past.

“We’re achieving some level of stability,” he said.

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