Small box retail is the new Seattle trend, and small-shop local retailers are rising to the top. Investor groups are primed, seeing this market as a cherry-picking field of opportunities. Strong big box retailers are shopping a surplus of space that has gone dark.
The vacancy rate in the Puget Sound area is 7 to 8 percent, with 4 percent being the norm in prior recessions. Retailers that have vacated without immediate replacement include Circuit City, Linens 'n Things and Joe's Sports & Outdoor. Developers and landlords have struggled to crunch numbers that mid-box retailers can digest.
Retailers still seek “Main & Main” locations. Small shop space now commands 25 percent lower rents, but remains competitive due to lack of new construction. From small to large space, tenants should expect to see rates in the low teens, even the single digits in one-off markets. After many peaked at more than current market rates, renewal rates have now dropped in order for landlords to retain tenants. Often space that would have commanded $36 per square foot to $40 per square foot 2 years ago, now goes for around $30 per square foot.
Both the upper-income suburban locations and the inner-city mixed-use sites that were once hyped are now experiencing diluted interest. Whether due to the lack of availability of funds or the departure of prospective tenants, active developments are struggling to start or finish lease-up; some examples include Issaquah Highland in Issaquah, the Whole Foods Marketplace projects in West Seattle, The Landing in Renton, Ballard Blocks in Ballard and the southside lifestyle addition at the Tacoma Mall in Tacoma.
Maple Valley Town Center, developed by Powell Development and anchored by Fred Meyer; Interbay, developed by TRF Pacific and anchored by Whole Foods; and the recently opened Shops at The Bravern, developed by Schnitzer West and anchored by Neiman Marcus, are ramping up in the market.
— Jeffrey Rosen and Elizabeth Best are senior retail advisors at Seattle Pacific Realty.