Creative Backfills and New Deliveries Create Positive Outlook for 2019
Vacancy and Absorption Trends
The second half of 2018 experienced 56,000 square feet of negative absorption in the multi-tenant retail market, negating the positive absorption that occurred in the first half of the year. This negative absorption was due to closings of Toys 'R' Us, Herberger’s and Sears big box and junior box stores in the latter half of the year. As a result of the negative market absorption at the close of 2018, the Q4 vacancy rate rose to 6.3%, which is the highest rate since Q3 2017.
The Southwest market had the largest amount of negative absorption totaling to negative 50,000 square feet in the second half of 2018, due to the 61,000-square-foot Toys ‘R’ Us closure at Ridgedale Festival Center. The Northeast submarket, specifically in Maplewood, experienced a number of closures: Sears in the Maplewood Mall for 60,000 square feet, Rainbow Foods for 54,000 square feet in the Mapleridge Shopping Center and Herberger's for 27,000 square feet in Birch Run Station. The absorption figures in the Northeast were offset by the exciting opening of the Von Maur, a new 141,000-square-foot department store in Rosedale Center.
Of the retail submarkets that had positive absorption, the Southeast made a nominal gain of 2,000 square feet and the Northwest submarket absorbed 29,000 square feet. Fitness centers and new grocery stores were the retailers who stabilized these two submarkets. In the Northwest, Hy-Vee absorbed 52,000 square feet in Plymouth Station Shopping Center and Xperience Fitness moved into 45,500 square feet at Riverdale Commons. For the Southeast submarket, Planet Fitness, TJMaxx and HomeGoods occupied 60,000 square feet in Grove Plaza Shopping Center and a new Alamo Drafthouse Cinema was constructed in Woodbury Lakes, adding to the overall absorption figures.
Retail construction was limited in the second half of the year, especially multi-tenant developments. There were two notable projects that were delivered in the latter part of 2018: the aforementioned Rosedale Center anchor tenant, Von Maur and the 86,500-square-foot Hy-Vee in Robbinsdale that was redeveloped in place of a Rainbow Foods and movie theater. 2019 expects to see more deliveries, as there are planned redevelopments in the Minneapolis CBD and big box vacancies at regional malls.