The retail market in Southern Maine remains strong through mid-year 2015. Retail vacancy rates are low, investment sales are up, new retail projects are actively under construction, and plans for new retail developments are on the horizon. Positive trends in Maine’s retail sector have been evident for several years now, indicating that the market has stabilized and there is strong potential for further commercial growth over the next several years.
According to Malone Commercial Brokers’ 2014 State of the Market Retail Survey, the Greater Portland retail vacancy rate for 2014 was 3.68 percent, compared to 10.8 percent in 2009. The vacancy rate has consistently dropped every year since 2009, with 2014 marking the lowest vacancy rate in Greater Portland in six years.
Initially, annual retail vacancy rate declines in Southern Maine were related to the absorption of empty big boxes and retail centers located in the Maine Mall District in South Portland, as well as the newly created retail hubs built along the Maine Turnpike corridor during the construction boom in the early 2000s.
By 2012, one of these new retail hubs located in the City of Biddeford saw Lowe’s, Linen ’N Things, Old Navy, and Best Buy close their doors in complexes that were constructed 5 to 10 years prior. Anchor tenants in retail centers provide a significant amount of the consumer traffic for the smaller retailers within close proximity. Between the recession that caused consumers to tighten their hold on their pocketbooks and less traffic coming into centers where major tenants had gone dark, a domino affect of sorts took place and retail stores of all sizes closed throughout Maine and across the country.
As recent history showed us, discount stores absorbed many of the larger vacancies and the smaller spaces were filled with quick service food operations that cater to consumers with a budget. Now that the economy is stabilizing and retailers are actively expanding into the Maine market, developers are back to work in order to meet the brick and mortar demand.
However, with new development comes more competition in the commercial marketplace. In the event that new retail construction creates too much available space and we see new closures of big box retailers, we run the risk that recent history will repeat itself.
Sales & Leasing Activity
Retail investment and owner/occupant retail properties are currently a hot commodity in Southern Maine. Much of this interest is driven by the pending increase in interest rates. Will rates increase in September 2015, December 2015, or the first quarter of 2016? Investors want to take advantage of the low interest rates before it is too late. Without having a firm timetable of when rate hikes may occur, decent investment properties are selling quickly, new offerings are being offered for a higher price than comparable sales of several years ago, and capitalization rates are declining. Depending on the market and quality of the product, capitalization rates for solid retail investments in Southern Maine are currently being offered between 6 and 8 percent. However, if interest rates go up, the current capitalization rates should increase slightly to compensate.
Inventory of retail sales listings in Southern Maine has been extremely low through the second quarter of this year. As of June 18, our the New England Commercial Property Exchange database showed 24 retail listings for sale (including investment and vacant properties) in Portland, South Portland, Scarborough, Falmouth, and Yarmouth. Seven of these listings were marked as “sale pending.” Running a search on the same database for leasing inventory, there were 20 retail units available between 10,000 and 24,999 square feet and 12 spaces greater than 25,000 square feet. With a low supply of retail product on the market combined with the high demand of investors and retailers, we forecast another strong year for Maine’s retail sector with expectations of continued growth through at least 2016.
— By Matthew Cardente, President / Broker, Cardente Real Estate. This article originally appeared in the June/July 2015 issue of Northeast Real Estate Business magazine.