On the Cusp of Black Friday, Colliers International Issues Semi-Annual Retail Report, Showing Marked Weakness in Retail Real Estate as 2009 Approaches

BOSTON, Nov. 24 /PRNewswire/ -- The U.S. retail market has undergone a sea change not experienced in this country since the early 1980s, according to the bi-annual Retail Real Estate Report issued today by Colliers International, a leading global real estate services firm. Due to recessionary conditions, retail real estate will be significantly afflicted for the remainder of this year and well into 2009, according to Colliers.

Several reasons drive this monumental slowdown in retail markets and the anticipated ongoing repercussions in the quarters to come:

-- The U.S. economy contracted during Q3 with further declines anticipated in both Q4 and through until at least Q2 2009.

-- Consumer confidence has plunged to levels not witnessed since record- keeping on this began in 1968.

-- The labor market has already shed 1.2 million jobs in the first 10 months of 2008 with more job losses expected for the remainder of 2008 and into 2009.

-- The Labor Department said last week that consumer prices fell by 1.0 percent in October, the biggest one-month decline ever, based on records that go back to February 1947 - this is characteristic of Depressions.

Because of these factors, retailers have become increasingly concerned with domestic consumer spending, with very few of them seeing new sources of growth. In addition, the emergence of a global recession, combined with a stronger U.S. dollar and a noticeable decline in wealth has dealt a fairly substantial blow to tourism related retailers, especially high-end. Lower gas prices have cushioned some of these effects, but the trend is still down with lower retail sales growth in almost every category.

"Not surprisingly, retail real estate vacancies are up and asking rents are down, albeit just marginally," remarked Ross Moore, executive vice president of market & economic research for Colliers International. "Demand for retail space is running at a paltry one quarter of last year's pace, and new construction is down 50 percent from 2007 levels."

Indeed, shopping centers, malls and urban retail alike will feel the effects of this weakened demand, with rising vacancy the new reality. Construction levels have already started to fall off, and this phenomenon will exacerbate in the coming quarters. Nonetheless, retail landlords will be faced with rising bankruptcies and further store closures as retailers confront an increasingly precarious retail environment.

"The near term is sure to be very challenging for retailers and landlords alike," said Pat Duffy, director of Colliers Retail Services Group. "With the economy faltering, shrinking credit availability and a quickly deteriorating job market, holiday sales are sure to be the weakest many retailers can remember. Looking ahead to 2009, it's highly unlikely conditions will stage any type of recovery until the second half of the year at the earliest.

"In addition, anecdotal evidence from our retail practitioners nationwide has made it clear that retailers are very reluctant to go forward with plans to open new stores," continued Duffy. "Only single-digit percentages of originally-planned openings are coming to fruition, and we predict store- closings on a large scale come January, after retailers have slugged through the holiday peak season."

The commercial real estate capital markets are also feeling the effects of this downturn. With a slowing economy, and depressed consumer activity, developers and investors are struggling to finance existing and new developments. This is reflected in the latest investment sales numbers which, for YTD through October, are down 71 percent.

Retail sales have been down for three months in a row, with year-over-year growth in retail sales (excluding autos and parts) clocking in at a meager 1.4 percent. Across the various retail sectors, the most rapid growth (excluding gasoline sales and non-store retailers) was in grocery stores with YTD growth of 6.1 percent. In other corners of the retail universe, however, conditions were not as rosy:

-- Furniture and home furnishing stores that have seen YTD sales shrink 6.2 percent.

-- Another housing-related sector, building material and garden equipment stores, have also witnessed a significant slowdown with YTD sales down 2.3 percent.

-- The bellwether general merchandise group registered YTD gains of 4.6 percent, a moderate slowdown compared with 4.8 percent during the year-ago period.

-- Department stores continue to post declining sales, falling 3.4 percent YTD.

Juxtaposing grocery stores' growth with other segments' decline puts a firm spotlight on the way a "wants versus needs" dynamic - or necessities versus discretionary spending - dictates performance. For the near term, retail sales will be divided between these two disparate camps:

-- Discretionary spending will be characterized by declining sales and store closures. This group encompasses retail categories such as fine dining, luxury retail, home furnishings, tourism and auto sales.

-- Department stores and the troubled banking sector are key sources of weakness, deserving careful attention.

-- Low-end retailers and discount retailers, however, will make ongoing gains. Warehouse retailers, such as Costco, continue to reflect this trend with steady sales growth. Discount retailers such as Wal-Mart should be watched for gains as well.

-- With consumers cutting spending wherever possible, grocery stores are expected to post healthy growth - the notable exception being more high-end and organic grocers.

-- Drug stores are also expected to be a rare source of growth.

    Vacancy Rates:  Neighborhood and Community Retail Centers in markets
nationwide
                                         VACANCY            VACANCY
                                        RATE DEC 31,      RATE SEP 30,
    MARKET                               2007 (%)          2008 (%)
    Atlanta, GA                            8.9               12.0
    Baltimore, MD                          4.6                6.4
    Boston, MA                             5.7                7.5
    Charlotte, NC                          6.1                9.4
    Chicago, IL                            8.9               10.5
    Cincinnati, OH                        12.2               11.7
    Cleveland, OH                          9.9               11.9
    Columbus, OH                          12.4               14.8
    Dallas/Ft. Worth, TX                  11.5               13.5
    Denver, CO                             8.8               10.3
    Detroit, MI                           11.2               14.1
    Greenville/Spartanburg, SC            10.0               10.2
    Hartford, CT                           7.0                8.4
    Houston, TX                           10.9               12.1
    Indianapolis, IN                      12.2               13.3
    Jacksonville, FL                       6.5                9.5
    Kansas City, MO-KS                    10.2               12.8
    Las Vegas, NV                          6.4               10.8
    Los Angeles - Inland Empire, CA        5.7                4.8
    Los Angeles, CA                        3.2                8.8
    Memphis, TN                           13.2               13.9
    Miami/Dade County, FL                  4.4                4.7
    Milwaukee, WI                         11.5               11.2
    Minneapolis, MN                        7.4                9.4
    Nashville, TN                          8.0                8.6
    New Jersey - Northern                  5.2                6.7
    Oakland/East Bay, CA                   5.1                5.9
    Orange County, CA                      2.7                4.2
    Orlando, FL                            5.7                8.1
    Palm Beach County, FL                  5.8                7.6
    Philadelphia, PA                       8.0                9.5
    Phoenix, AZ                            7.3               10.3
    Portland, OR                           5.5                6.7
    Raleigh/Durham/Chapel Hill, NC         8.4                8.0
    Sacramento, CA                         7.1               10.3
    San Diego, CA                          3.2                4.8
    San Francisco, CA                      2.9                2.8
    San Jose/South Bay, CA                 2.8                4.2
    Seattle/Puget Sound, WA                4.8                6.5
    St. Louis, MO                         10.1               12.0
    Tampa/St Petersburg, FL                6.6                8.2
    Washington, DC                         3.3                5.5
    U.S. Total                             7.5                9.3

About Colliers

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 11,000 employees span the world in 293 offices in 61 countries. On a worldwide basis, Colliers manages 868,000,000 square feet, and has revenue of $US 2.0 billion. For more information, visit www.colliers.com.