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BY EDWARD D. MURPHY
MaineToday Media, Inc. 06/01/2008

BY EDWARD D. MURPHY

MaineToday Media, Inc.

The vacancy rate for Maine retail space shot up last year to more than triple what is has been and worries are growing another million square feet of space being planned could create a glut that would take years for the market to absorb.

The addition of more square footage is "alarming," warns a report on the retail market prepared by Malone Commercial Brokers.

The brokerage said 1 million square feet could be added this year if major projects go ahead, increasing the amount of retail space in Greater Portland by 20 percent at a time when the inventory of unleased space is growing. For consumers, the increasing number of vacant storefronts indicates the influx of national retailers that began a decade ago is dwindling to a trickle, meaning fewer choices and fewer new jobs. For towns, unleased space could pinch tax revenue, while the state would lose millions in sales taxes.

And for economic development departments, it will be even harder to woo new businesses with a host of "for lease" signs sitting in empty windows.

"It could be the train is out of control and we're hanging on," said Michael Scarks, a developer building a retail center across Payne Road from the new Cabela's store in Scarborough.

Greg Boulos, a partner at CB Richard Ellis/The Boulos Co., a commercial brokerage, said he noticed a sharp change in attitude at a recent national industry conference where developers, brokers and retailers often start negotiations on new store deals. Attendance was down about 20 percent from previous years, Boulos said, and "there was a noticeable absence of national retailers there. The retailers are kind of putting on the brakes and only doing the prime, prime locations."

That's because consumers are pulling back, said Sam Chandan, chief economist for the real estate research firm Reis, based in New York.

"There's been a real change in terms of the capacity of the consumer to drive economic growth," Chandan said.

During the recession in early 2001, consumers continued -- and in some cases, increased -- spending. That recession was driven largely by a cutback in business investment, but consumers took advantage of low interest rates -- meant to counteract that slowdown -- to borrow and spend. Some of the cash came from homeowners pulling out equity in their houses through refinancing. Others used low interest rates offered by credit card suppliers to run up balances.

The run-up in housing prices and easy credit created a "wealth effect," Chandan said, where people felt money was plentiful and they spent like it. Now, falling house prices mean homeowners have little, if any, equity in their homes and those credit card balances are eating up a bigger and bigger share of household budgets that are also strained by high energy and food prices.

"We have, to some degree, a negative wealth effect," Chandan said. "For retailers, that's not an environment in which to add or expand stores."

Chandan said his company's figures from the first quarter show a "negativenet absorption" of retail space nationally. That means less actual space -- not a lower percentage -- was occupied compared to the previous quarter. That's the first time that's happened since Reis starting tracking retail real estate in 1980, he said.

Greater Portland is actually a little better off than the nation as a whole, with a vacancy rate of 5.6 percent last year, compared to 7.5 percent nationally. But the jump has been sharp in the past couple of years.

Owners now rarely get what they ask for in lease rates and often have to throw in incentives, such as a month or two rent-free, said Dale Holman, an associate broker at Malone Commercial Brokers. The proven success of retailers at the Maine Mall adds some stability to the market, Holman said. But the proliferation of shopping centers outside of South Portland -- in Biddeford, Topsham and Augusta, for example -- is worrisome, he said.

"The prime properties will always be filled around the mall," he said, but owners have had trouble filling all the space available elsewhere, such as at the Pine Tree Shopping Center in Portland, which was renovated and expanded recently and is anchored by a new Lowe's store.

"I don't think it's doom-and-gloom, but what's going to happen when other developments are completed," Holman asked. "It's more about what's to come."

Malone's report said the new development includes Scarborough Gallery, which already has a Lowe's and a new Wal-Mart is now under construction. Other projects include Freeport Village Station, he said. But the proposed Stroudwater Place project, between Stroudwater Street and the Westbrook Arterial in Westbrook, which would have 1.2 million square feet of commercial space, much of it retail, is not included in the figure.

Boulos said market forces help keep overbuilding in check because developers often won't go ahead with a retail center unless there's a signed lease with an anchor store and commitments for a substantial portion of the rest of the space.

But, he added, if any of the big-box retailers decide to close a store in Maine, the space has the potential for sitting there for a while.

A big chunk of the new and planned development is in Scarborough.

Harvey Rosenfeld, president of the Scarborough Economic Development Corp., said he'd like to see future development along the Haigis Parkway follow the original plans, which call for mostly office space. That section of town is anchored by Cabela's, the hunting and fishing superstore that opened in May and is expected to attract millions of shoppers and gawkers during its first year of operation.

He said 80 percent of the retail space already built adjacent to Cabela's is leased and has attracted primarily Maine businesses.

"We have a lot of retail in Scarborough," Rosenfeld said, which should be balanced by other commercial space. But he's not concerned that vacant stores will proliferate in the town.

"I'm not terribly worried because these (developments) are, for the most part, not speculative. They're built for specific tenants," he said.

Scarks said that's the case with his First Look Plaza, which will be what Cabela's-bound consumers see first when they exit the Maine Turnpike. He has a golf and ski shop signed for 75 percent of the space and is in negotiations for the rest.

It's a very unusual situation because of the new hunting and fishing store, Scarks said, noting he bought the land where his plaza is going about 10 years ago.

"Cabela's accelerated the process into warp drive," he said. But Scarks worries about other areas that don't have a Cabela's to draw consumers.

"The market in Maine is so overblown," he said, noting stores and restaurants at places like Biddeford Crossing might be bustling on a rainy July day that sends beachgoers shopping, but Maine's summertime is short. "On a Tuesday night in February, it's a different story," he said.

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