KNOWLEDGE REPORT

Retail Research & Forecast Report Q2 2018

Colliers International | Greater Cincinnati

Key Takeaways Market Indicators

Relative to prior period Q2 2018 Q3 2018*
>> The Cincinnati retail market posted negative net absorption of 152,546 square
feet during the second quarter of the year negating a nearly equal size gain VACANCY
during the first quarter. This resulted in an increase of 20 basis points in the
overall market vacancy rate, which now equals 8.0%. NET ABSORPTION
>> Most of the loss in occupancy was concentrated in the freestanding sector,
CONSTRUCTION
which continues to be impacted by the closure announcements of big box
retailers, such as K-mart, Sears and Toys-R-Us. RENTAL RATE**
>> Average weighted asking rental rates have increased by 3.2% since the
beginning of the year to $13.44 per square foot, driven by continued demand * Projected, relative to prior period
** Neighborhood Center Rent
for Class A community and neighborhood centers, which have, to date,
avoided the turmoil in the retail sector.

Physical Retail is Not Going Away Anytime Soon

What is the state of retail at the midpoint of 2018? While e-commerce and
technology continue to disrupt the traditional retail model, in-store shopping
still comprises 91% of overall retail sales. Projecting into the future, forecasters
estimate that physical stores will still capture more than 80% of total sales in MARKET STATS
2025. The demand for the in-store shopping experience is not going away, but
retailers have to create a compelling reason for consumers to visit their store.
AT A GLANCE
Even pure E-tailers have begun to respond to consumers’ desire for in-store
experiences as evidenced recently by Warby Parker, Untuckit and others opening
physical locations. However, these new-to-bricks-and-mortar retailers will
only open one or two stores per market in the premier trade area in contrast
to retailers’ previous preference to cover as much of a market as possible with
multiple locations.

8.0% $13.44
That approach led to the U.S. leading the world in the amount of retail space with
24 square feet per capita. Major European economies record only a fraction of
that total and squeeze higher sales out of much less space, suggesting a much
more efficient allocation of resources. VACANCY RATE MARKET ASKING RENT
To support the higher store counts, U.S. retailers have taken on substantial
amounts of debt. As sales fall, the debt service expense remains fixed. And when
that debt comes due, those without the cash are faced with tough choices. Many
analysts are forecasting the number of retailer bankruptcies in 2018 to remain
the same or even higher than last year.
The retail market continues to experience a bifurcation with strong demand
focused on grocery-anchored neighborhood centers, community centers, small

-152,546 227,340
strips, mixed-used developments and single-tenant properties and outlots in
prime locations.
At the other end of the spectrum, the properties experiencing the greatest
challenges include big box, Class B & C centers and malls in marginal locations
ABSORPTION (SF) UNDER CONSTRUCTION (SF)
who have lost anchor tenants. The gap continues to widen and there is very little
middle ground remaining.
The most active retailers include food concepts, entertainment, boutique
fitness, service and convenience providers along with discounters. The highest Summary Statistics
Q2 2018 Cincinnati Retail Market Cincinnati
demand is for end cap spaces or outlots in order to meet the growing consumer
preference for convenience and speed. Rent growth in the Class A sector is Vacancy Rate 8.0%
offsetting the increase in construction costs for small strips and freestanding
buildings. Change From Q1 2018 (basis points) +20
The spate of big box store closings has had the opposite impact on rents. Retail Absorption (Square Feet) -152,546
owners are struggling to replace the rents lost as most of the demand for
these properties has come from entertainment, fitness and discount soft goods Under Construction (Square Feet) 277,340
retailers, all of whom have pushed rental rates down.
Many times, the best case scenario for these vacant big-box properties is
Completions (Square Feet) 31,849
conversion to a different use altogether, some of which include, industrial, self-
storage, and medical office. This re-purposing trend continues to pick up steam,
removing a portion of the obsolete inventory from the market, and mitigating the Asking Rents
risk of large spikes in vacancy in the future. Per Square Foot Per Year

Impacting shopping center space, there have been 4,146 store closures to date
Overall Market $13.44
in 2018 according to Coresite Research, which is on pace to surpass last year’s
Community Center $11.93
total of 7,066. Also, so far during the current year, new store openings have not
kept pace with closures, although it is expected that Class B and C properties Neighborhood Center $13.10
will be hit the hardest as retailers weed out their worst performing stores.
The potential for decreasing rents and increasing vacancy will continue to haunt
Conv/Strip Center $13.14
the bottom end of the market, while steady demand for a diminishing supply of
Class A space, especially end cap space and small freestanding buildings, will
allow owners of premier properties to enjoy high occupancy levels and modest
rent growth.

Notable Retail Leases | Q2 2018

PROPERTY NAME PROPERTY ADDRESS LEASE DATE LEASED SF TENANT NAME TYPE TRADE AREA

Shoppes of Kenwood 7670-7714 Montgomery Rd Apr-18 13,612 Discount Fashion Warehouse Conv/Strip Ctr Kenwood

925 E Kemper Rd 925 E Kemper Rd May-18 8,120 Undisclosed Restaurant Freestanding Tri-County

6927 Lefferson Rd 6927 Lefferson Rd May-18 8,000 Open Arms Health Systems Freestanding Middletown

1311 Route 63 1311 Route 63 May-18 8,000 Undisclosed Tenant Conv/Strip Ctr Monroe

Brentwood Plaza 8447-9167 Winton Rd May-18 7,230 Ambiance Nail Salon Community Ctr Finneytown

749 State Route 28 749 State Route 28 Apr-18 7,000 Baymark Conv/Strip Ctr East

Dixie Highway Shopping Center 7009 Dixie Hwy May-18 6,000 Kentucky Furniture Conv/Strip Ctr Florence

Shoppes at Menards Crossing Mar-18 5,292 El Rancho Nuevo Conv/Strip Ctr Northwest Hamilton

Notable Retail Sales | Q2 2018

BLDG SIZE
PROPERTY NAME/ADDRESS SALE DATE SALE PRICE BUYER SELLER TYPE SUBMARKET
(SF)

KFC/Taco Bell Portfolio Jun-18 $24,297,161 31,973 Realty Income Corporateion Undisclosed Freestanding Multiple

4468 Eastgate Drive - fmr HH Gregg Mar-18 $3,050,000 48,000 Duloc Eastgate LLC Pebb Enterprises Freestanding Eastgate

5264 Dixie Hwy Jun-18 $3,020,000 32,000 Moir Park Management LLC Siegel Robert Automotive Freestanding Fairfield

9057 Cincinnati Columbus Rd May-18 $2,700,000 16,000 Spicer Investment Holdings LLC Fidaw LLC Freestanding West Chester

1525 Madison Ave - Kroger Jun-18 $2,550,000 35,984 Kamin Realty Company The Kroger Co. Freestanding Covington

2721 Erie Ave Apr-18 $2,350,000 5,400 Loring Group PNC Bank NA Trustee Urban Retail Hyde Park/Oakley

112 & 113 Karl Brown Way May-18 $1,500,000 44,080 Wilderness Capital Ltd Bond Furniture Gallery Conv/Strip Ctr Loveland

118 6th Ave Apr-18 $1,030,000 22,458 6th Avenue Marketplace Ltd Avenue Properties LLC Conv/Strip Ctr Newport

2 Cincinnati Research & Forecast Report | Q2 2018 | Retail Market Outlook | Colliers International
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