The retail market in Columbia, South Carolina, faced extreme challenges during 2009 as the US economy struggled to climb out of a recession. The overall market occupancy rate decreased from 90.94% at year-end 2008 to 87.30% at year-end 2009, representing the first time in nearly a decade that the rate of occupancy in Columbia dropped below 90.0%. Just as with all other major markets across the U.S., Columbia’s retail market received little shelter from downturns in the national economy.
After the last recession ended in November 2001, the availability of inexpensive credit to the general population expanded greatly and retail consumption increased substantially. National retailers implemented aggressive growth strategies and increased inventory levels. When the credit crisis began to emerge in the early parts of 2008 retailers began to suffer, but by the end of the third quarter of 2008 consumer spending had experienced the sharpest drop since 1980 and retailers nationwide were facing financial difficulties.
The Columbia market held strong through year-end 2008, but a weak 2008 Christmas season brought with it multiple bankruptcies in the first quarter of 2009 and consumer confidence dropped to an all-time low of 25.3 in February. National brands such as Circuit City, Linens ‘N Things, Goody’s and Sofa Express closed locations due to bankruptcy, while Office Max, Sears and Ashley Home Furniture closed underperforming locations. The space vacated by these retailers totaled 496,937 square feet and comprised 3.94% of the entire Columbia market.
The good news, however, is that the aforementioned big box closings more than account for the 3.01% increase in retail vacancy experienced during 2009, indicating that there were very few closures among local merchants, restaurants and national value tenants. Retailers such as TJ Maxx, Ross, Dollar Tree and Dollar General expanded throughout 2009, and Target, Wal-Mart and Kohls maintained a dynamic retail presence.
Although retailers were able to keep their doors open, many were forced to reassess their business models and sales expectations. As such, many looked for ways to reduce real estate expenses through the reduction of annual rent. Mid-term rent reductions became increasingly common in 2009, first as struggling mom-and-pop retailers looked for means to survive, then as national credit tenants with underperforming locations threatened to vacate space unless landlords agreed to concessions. For landlords, working through difficult times to retain tenants is a lesser evil than searching for replacements that are few and far between.
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