Jobs, Income Growth in Washington, D.C., Give a Boost to Retail Sector
The Washington, D.C., area boasts the lowest unemployment rate among major metros, at 5.5 percent as of February 2013, which is about two percentage points below the total U.S. unemployment rate of 7.6 percent. In the 12 months prior to February 2013, the area fell only behind New York, Los Angeles Basin and Houston in terms of job growth, with 39,700 new jobs created.
At the same time in 2012, retailers shed approximately 1,100 jobs. While the effects of sequestration legislation are still unknown, the projected job growth from 2013 to 2017 is estimated to average 48,100 per annum. Two rapidly growing industry sectors are cybersecurity and healthcare.
The Washington area also has an average household income of $108,400, making it an impressive 59 percent higher than the U.S. average.
Incomes grew by 43 percent from 2000 to 2012, compared to 20 percent nationally. By 2017, the area’s average income is estimated to rise 14 percent, still higher than 13 percent nationally.
Retail inventory (all types) for the Washington metro area totals approximately 220 million square feet. As of March 2013, the overall vacancy rate was 4.8 percent — the lowest in the nation. The market has seen no overall change to the vacancy rate over the past four quarters, although the amount of sublease vacant space has trended upwards. The vacancy rate for shopping centers inside the Beltway, District, Alexandria and Arlington submarkets, was even lower at 3.8 percent at the end of the first quarter 2013.
Overall net absorption was slightly positive for the first quarter of 2013 at 84,376 square feet, with 455,583 square feet of new deliveries in the same quarter and more than 1.8 million square feet under construction at the end of the quarter.
Among the top deliveries in the first quarter, Walmart opened an 80,000-square-foot store at Tysons Corner, The JBG Co.’s new mixed-use project on the soon-to-open Silver Line Metro. 24-Hour Fitness also opened a 40,000-square-foot facility at the property. In another significant delivery, Goodwill of Greater Washington opened a 25,769-square-foot property in the older Annandale Shopping Center.
Major leases signed in the first quarter include Village Thrift with 81,550 square feet, Ace Wholesale Market with 65,000 square feet and Great Wall Supermarkets with 52,700 square feet.
Approximately 2.8 million square feet of grocery-anchored shopping centers were under development as of March 2013 (new construction or renovation).
One of the three largest projects includes the Beatty Management Co.’s new 600,000-square-foot Dulles Landing in Loudoun, scheduled to open in the spring of 2014, which will be anchored by Walmart. Additionally, Greenberg Gibbon is developing a new mixed-use project called Towne Center at Laurel at the former Laurel Mall site. The project is scheduled for completion in fall 2014 and will include 400,000 square feet of retail, anchored by Harris Teeter and movie theaters.
In addition to these top projects, the CityCenterDC project, being developed by Hines and Archstone in downtown D.C., will include 295,000 square feet of retail. Approximately 185,000 square feet of retail in the project is scheduled for completion in fourth quarter of 2013.
In addition to the aforementioned 2.8 million square feet, several older malls are undergoing significant transformations. Vornado is repositioning the old Springfield Mall into the new Springfield Town Center, which will include 700,000 square feet of retail, restaurants and movie theaters.
The project is scheduled for completion in summer 2014. In Alexandria, the Howard Hughes Corp. plans to partially demolish the Landmark Mall to make way for a mixed-use project with 300,000 square feet of retail. Similarly, Forest City is adding apartments to the Ballston Common Mall in Arlington.
With the significant addition of new apartments in the District and easy access to the Metro subway, restaurants and retailers are becoming attracted to several emerging submarkets, such as 14th and U Streets NW, NOMA, the H Street Corridor and the Capitol Riverfront. Capitol Riverfront had 110,000 square feet of retail under construction at the end of 2012, with an additional 565,000 square feet in the planning stages. Walmart has plans to open five new stores in the District, three of which are currently under construction.
Restaurants, grocers, health/fitness companies and personal services were among the active retailers signing leases in the first quarter of 2013. At the ICSC 2013 Mid-Atlantic Conference in February, participating retailers announced their expansion plans in the region. These retailers included BJ’s Restaurant and Brewhouse, Bar Louie, Cooper’s Hawk Winery & Restaurants, Greenberry’s Coffee Co., Jersey Mike’s Sub, McDonald’s, Paisano’s Pizza, Stone’s Cove Kitbar, Cobb Theaters and Great Clips.
Considering all retail space 15,000 square feet or greater, 55 retail building sales transactions closed in all of 2012, totaling approximately $756 million. During that period, the average price was just over $175 per square foot with cap rates averaging 6.53 percent. This is compared with 2011’s average price of $221 per square foot and an average 7.02 percent cap rate.
— Alexander Inglese, senior vice president of Long & Foster Commercial/TCN Worldwide