The three-store retail strip center at 777 Connecticut Ave. in Norwalk, which recently sold for $11.4 million, is just one example of the rising demand for retail space across Connecticut.
It is stable and easy to maintain, and investors across the state and the country continue to snap retail space off the market almost as soon as it becomes available.
“Supply is miniscule and demand is insatiable,” said Al Mirin of CB Richard Ellis’ Stamford office. Mirin and several other brokers recently represented the seller of a three-store retail strip center in Norwalk for $11.4 million.
The national vacancy rate for retail in neighborhoods and community shopping centers was 6.8 percent at the end of last year, and every quarter of last year saw positive absorption, according to a report from Reis Inc. Positive absorption of 8.6 million square feet in the fourth quarter of 2005 brought the annual total to 30.5 million, the highest since 2000, when the market absorbed 33.8 million square feet, according to the report. In Fairfield County, vacancy at the end of 2005 decreased 0.8 percent.
Well-located retail properties carry little risk for investors, Mirin said. Unlike office buildings, which have high turnover and space that often requires refitting for every new tenant, retail is easy to manage. And with triple-net leasing, which requires the tenant to pay insurance, maintenance and taxes, retail properties leave investors free from many typical landlord responsibilities.
“With retail, you just have to have the vanilla shell,” Mirin said. “This is like a no-brainer.”
‘Spectacular’ Price
The sale in Norwalk of 777 Connecticut Ave. speaks to the ongoing desirability of well-placed retail centers, according to a press release from CB Richard Ellis. First Sterling Corp. of New York City bought the 19,240-square-foot property for $592.60 per square foot – a price Mirin called “spectacular.” The capitalization rate was 6 percent, he said.
Mirin and fellow CB Richard Ellis brokers Tom Pajolek and Ned Burns represented the seller, 51 Richards LLC – an entity controlled by Stanley M. Seligson Properties – in the transaction. Tom Torelli of Allied Property Group represented the buyer.
The retail center is on a little more than 1.5 acres just off Exit 13 of Interstate 95. The area is one of southwestern Connecticut’s busiest retail corridors, according to CB Richard Ellis. The strip center is fully leased to Pier One, FedEx Kinko’s and Cingular on long-term commitments, providing a stable income stream to the new ownership. Retail neighbors along Connecticut Avenue include Home Depot, Best Buy, Kohl’s, Wal-Mart, Sports Authority, Circuit City and Trader Joe’s. Costco is also directly behind 777 Connecticut Ave. and a Doubletree Hotel next door, creating significant cross traffic for the center. A large residential population with excellent demographics surrounds the property, according to CB Richard Ellis.
“Given its position and strong credit tenancy, 777 Connecticut Ave. truly has everything necessary for a successful retail location,” Mirin said in a prepared statement. “The Connecticut Avenue corridor just seems to get stronger every year, so new ownership should find the center an excellent investment over the long term.”
Nationally, Reis noted a wide dispersion of metropolitan market performance. That factor demands investors “complement their traditional attentiveness to regional economic trends and local trade area demographics with rigorous supply-side research.”
Developers have begun to follow investors into the retail arena. According to the report, Reis is tracking new projects that will add 37.7 million square feet in 2006, when absorption is estimated to total 31.1 million square feet.
That could result in an increase in the vacancy rate, but landlords likely will still find they are able to increase rents. There will be a similar situation in 2007, when the completion of new square footage will outpace absorption.
“Thereafter, the pace of new construction and the rate of positive absorption will begin to converge, and vacancy rates will respond by drifting modestly lower while annual effective rent gains should continue to exceed 3 percent,” according to the report.
