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All across Florida for the past two years, small shop tenants have been the main victims of the economic downturn and accounted for the majority of the new supply of excess space. This trend has turned as loss of small shop space operators has slowed substantially from the levels encountered during 2008 and 2009. In the second quarter of 2010, the average vacancy rate in the Tampa/St. Petersburg market stands at 11.1%, an increase of 200 basis points from 9.1% in 2009. We seem to have reached a bottom in small shop vacancy, as the majority of the new vacant space in the Tampa/St. Petersburg market came from widely publicized store closings by large box retailers such as K-Mart/ Sears, Circuit City, Linens ‘n Things, Sound Advice, and Sweetbay Supermarket.
The slowdown in shop vacancy and the near cessation of new construction will help vacancy to contract. As the economic recovery proceeds, we project that the Tampa/St. Petersburg market will fall to about 9% vacancy in late 2011. Nevertheless, the current excess supply of vacant space will continue to put a downward pressure on rental rates during 2010 and 2011. Once we break through the psychological level of 9%, we can expect to see rental rates start to rise again. We forecast that rental rates in the Tampa/St. Petersburg market will bottom out at $18—$19 NNN per square foot in late 2011.
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