Operating Expense Trends in Retail Space
Compared to 2010, retail property occupancy levels for 2011 were up almost 16% in PICOR's portfolio over the previous year. The average occupancy rate for PICOR’s managed portfolio was 80%, compared to 69% in 2010. While market wide vacancy was 91.6% at year end, PICOR's role in turning around distressed and receivership properties means a lower occupancy in our portfolio; however, year over year gains in traction were significant.
Fluctuations in common area maintenance (CAM) charges impact both retailers and landlords alike. Consequently, skilled property managers keep a sharp eye on the bottom line without sacrificing service levels. Pricing from service providers has remained fairly constant, and we have continued to leverage PICOR's buying power in the market, reducing CAM costs for such services as waste removal and pest control, to benefit owners and tenants of Tucson commercial real estate.
Comparing the latest annual expenses (2011) to the previous year, operating expenses increased approximately 20% overall in 2011, ending the year at $4.40 per square foot. With larger expenditures such as roof coating, parking lot sealcoating and landscaping upgrades back burnered during the recession, some property owners moved forward and completed those needed improvements in 2011. Those expenses are included in the Repairs & Maintenance and Roads & Grounds categories on the chart. Utilities and Real Estate Tax costs increased in 2011 over 2010, with a 21% increase in real estate taxes alone.
Rent delinquencies are down overall for tenants of Tucson shopping centers and other retail properties, and rent reduction requests are now few and far between. Businesses appear to be more optimistic about the future, but the majority do not appear to be ready for expansion into new locations. Local "mom and pop" businesses continue to struggle in many instances; however, that is not out of the norm.
As with industrial properties, the mood in the Tucson retail market is “cautiously optimistic,” a sentiment equally prevalent with tenants and landlords. Shopping center owners and property managers who provide excellent customer service to their tenants, including diligence in keeping expenses in check, along with thinking “out of the box” for synergistic cross-marketing opportunities for their tenants, will be the winners in retaining their tenants in the future.
Click for a companion review of 2011 industrial operating expenses.
Eileen M. Lewis, RPA FMA leads PICOR’s property management division and is one of 13 principals. A long-time Tucsonan and 26 year veteran of the commercial real estate industry, Eileen has managed a portfolio of industrial, retail, and office buildings for private and institutional investors and served as Receiver for distressed assets. An active industry leader locally and nationally, she has served the Building Owners & Managers Association (BOMA), Commercial Real Estate Women (CREW) and others.
Photo source: Gary Rumack Photography