The Wall Street Journal reports that"April Store Sales Seed Recovery Hopes" (WSJ, May 8th, 2009). After a long cold winter, where many retailers moved from "soft holiday sales" to "going out of business," vacancies have increased significantly. Tremendous opportunities are now available to lease retail space ranging from store fronts on NW 23rd to big boxes in Tanasbourne.

The Portland retail market totals 43.7 million square feet. The end of the first quarter vacancy was reported at 2.9 million square feet (6.5%). Fifty percent of the market’s vacancy results from 33 big box closures, totaling 1.4 million square feet.

Portland’s retail market peaked in 2007 when 1.6 million square feet came on the market. Big box rental rates topped out at $26 to $28 per square foot as Best Buy (36,278 square feet) and The Sports Authority (40,205 square feet) leased space in Tanasbourne. Shop space rents at that time were in the mid $40s per square foot and pads lease rates were $160,000 per year. While new retail space rates reached record highs, our stringent land use laws prevented overbuilding.

In early 2008 numerous retail leases were signed that have recently opened. PetSmart opened a 26,549 square foot store on 185th and Walker, a 20,087 square foot store on 78th and Hazel Dell Road in Vancouver and a 20,926 square foot store at Cascade Station in Portland. Dollar Tree opened a 8,500 square foot store on NE Sandy and a 10,360 square foot store at The Civic on West Burnside. 24 Hour Fitness leased 43,205 square foot for a club on McLoughlin Boulevard, scheduled to open this year. These "post peak" rents ranged from $14.00 to $24.00 per square foot, a significant difference from the rents achieved in the prior year.

The third and fourth quarters of 2008 were quiet with virtually no new retail deals completed. National retailers pushed back store openings in light of weakening retail sales. Incomplete leases were re-traded causing new projects to either slow or be cancelled altogether. New construction virtually stopped and retail space was coming back on the market as a result of store closings and bankruptcies. Unprecedented amount of retail vacancies were occurring in areas that were historically full, like NW 23rd.

The combination of available real estate and declining rents has now attracted retailers back into the market. National retailers began touring again in February, indicating that perhaps there is light at the end of the tunnel.

Retailers of all sizes and categories are looking for locations at rents that were unheard of in yesterday’s environment. Big box tenants from dollar stores to sporting goods are looking for new opportunities in most major trade areas. Small shop tenants, locals to nationals, specialty retail to fast casual food, are looking at prime locations that may not have been available to them before the market deteriorated. Pads, while not as plentiful, are still available in select areas for fast food and financial tenants with the ability to expand.

Sophisticated landlords are not demanding the rents they were receiving in the past, but instead they are doing what it takes to attract tenants and make deals, as well as keeping existing tenants. Anchor tenant rents are down 10% to 50% (depending on location), shop space rents are down 20% and pads are off 25%.

While the number of written proposals to lease space is still nothing near the peaks attained in 2007, retailers are using this time to feel out the market and landlords. We expect to see renewed deal flow following the upcoming ICSC convention this month. The retail real estate market is on sale in Oregon and property owner of well located retail real estate are required to be aggressive to secure new tenants in this market.