08 Lerner cover:Layout 1 4/2/09 5:51 PM Page 2 Omaha, Nebraska Retail Market Summary Year End 2008 Inside pages:Layout 1 4/2/09 8:07 PM Page 1 Omaha, Nebraska Retail Market Summary - Year End 2008 The National Perspective retail real estate industry has not experienced a severe CONTENTS The climate for retailers during 2008 proved to be disruption since 1991 and that the current correction is Retail Submarket Map . .2 very challenging. As the year dawned, the retail long overdue. Those landlords and retailers that Retail Market Summary . .2-3 industry was struggling with a softening economy and emerge successfully from this crisis will be well posi- what was already being recognized as an oversupply tioned to benefit from the elimination of their weaker Northwest . .4-7 of cu of retail space. During the first half of the year, many rivals when conditions improve, as they surely will. Southwest . .8-11 vacan national chains were having difficulty posting positive North Central . .12-13 15% comp sales. When the bottom fell out of the econo- The Omaha Experience South Central . .14-17 my during the second half of the year, retailers were The current stress in the nation’s economy is hasten- This East . .18-19 generally quite vulnerable and unprepared to absorb ing the end of the most prolific period of growth in of pro Sarpy . .20-21 the blow proffered by the dramatic decrease in top the history of the Omaha retail market. During our last in ex line sales. As the year closed, consumers had a sense Summary at year-end 2007, we had predicted a con- Council Bluffs . .22-23 frees of foreboding regarding the potential length and tinuation of the recent trend of adding new retail store severity of the recession. Many had sharply curtailed space at a rate far in excess of the population growth There their spending on most categories of retail goods. A rate, and that is in fact just what occurred. The follow- For the purposes of this survey, locat few discount retailers, particularly Wal-Mart have ing survey compiled by The Lerner Company, closely we have assigned five size cate- are s weathered the storm fairly well, but the broad gories to the retail properties we conse majority of retailers are experiencing signifi- have evaluated. squa cant duress. Announcements of store closing Cat. 1 - Super regional proper- prop lists have become commonplace and several ties containing in excess of and t prominent retailers have filed for bankruptcy, 800,000 square feet. ing o including Circuit City, Linens ‘n Things, Cat. 2 - Regional properties con- our s Mervyn’s, Goody’s, and Steve & Barry’s. taining from 250,000 to 800,000 seven square feet. egor Retailers’ problems are compounded by the Cat. 3 - Community properties well publicized shortage of available credit. containing from 100,000 to As w Many well known retail chains that need to refi- 250,000 square feet. consi nance debt in the near term are considered vul- Cat. 4 - Neighborhood proper- both nerable and may be forced to file for bankrupt- ties containing from 30,000 to new d cy during 2009. A statistical model utilized by 100,000 square feet. receiv the research arm of the International Council of Cat. 5 - Properties smaller than ing ra Shopping Centers is forecasting that 148,000 30,000 square feet. rent o retail stores will be forced to close in the United States evaluated a total of 294 retail properties containing ing t You will be able to see how each of during 2009, which is about 33% in excess of the aver- over 28.7 million square feet of retail space and is the these categories is performing Most age closing rate from 2003 – 2007. The restricted most comprehensive report undertaken by any source within their respective submarkets. days credit markets are also posing a threat to the stability on the current status of the Omaha retail market. than of some landlords. Many are considered overlever- During Calendar Year 2008, in excess of 1.7 million it is im aged due to suddenly declining asset valuations and square feet of new retail space was added to the ally d recently revamped underwriting standards. These Omaha retail market. Despite the absorption of near- The information contained here- (espe in has been obtained from rea- conditions are threatening some of the nations’ most ly 800,000 square feet, we now find ourselves with a strain sonably reliable sources. The prominent landlords, including General Growth, which vacancy rate of 13.4 percent, representing 3.8 million ence Lerner Company makes no guar- must refinance a massive amount of short term debt. square feet of vacant space. At the current pace of prob antee, either express or implied absorption, and without accounting for any future to the accuracy of such informa- take tion. All data contained herein is While it is difficult to predict how long these challeng- new construction, the existing vacancy represents a ing conditions will persist, surely many retailers and 46 month supply. While vacancy is already at histori- subject to errors, omissions and Perha over leveraged landlords will be eliminated during the cally high levels, vacancy will surely take another large changes. Reproduction in whole matic or part, without prior written current downturn. Nevertheless, it is important to jump during 2009, as retailers contract in reaction to the fo consent is prohibited. remember that our economy is and always has been the sales slump of the most severe recession since the area. cyclical in nature. The fact of the matter is that the early 1980’s. While it is difficult to be precise, in light cle a 2 Inside pages:Layout 1 4/2/09 8:07 PM Page 2 Historical Inventory Total Market Vacancy Total Market Absorption 30 20% 25 2006 1,002,678 Feet 15% 13.39% 20 10.75% 10.82% 2007 1,209,631 Square 10% 15 8.48% of 10 28,742,490 2008 1,176,192 26,597,233 25,219,894 5% evere 23,497,665 5 Millions ion is 0 0.3 0.6 0.9 1.2 1.5 0 0% that 2005 2006 2007 2008 2005 2006 2007 2008 Millions of Square Feet posi- eaker of current economic conditions, we feel that Properties Group, will close the interior portion development adjacent and east of Mutual of l. vacancy in the Omaha market is likely to reach of the mall during the near term. Mall of the Omaha’s corporate headquarters. Midtown 15% by the end of Calendar Year 2009. Bluffs has been severely injured by the reloca- Crossing, which is slated for completion in tion of both JC Penney and Target to nearby September 2009, is a joint venture of Mutual of sten- This survey takes into consideration two types open air power centers, and its owner, General Omaha and ECI Investment Advisors and will wth in of properties, (1) multi-tenant shopping centers Growth Properties, is in financial crisis as result consist of approximately 500 residential units, a r last in excess of 15,000 square feet, and (2) large of over leveraging its vast portfolio. While sales 132-room hotel and 225,000 square feet of con- freestanding stores operated by major chain at Westroads and Oak View malls dropped retail space. Both of these impressive projects retail store retailers serving the Omaha market. slightly during the last year, both remain have been hampered somewhat by the difficult owth There are many additional retail properties vibrant and strong and will remain the domi- retail environment. Midtown Crossing faces an llow- located throughout the metropolitan area that nant retail powerhouses in the Omaha market additional challenge posed by the dire straights osely are smaller than 15,000 square feet. We would for the foreseeable future. It is somewhat iron- of the residential market and the preponder- conservatively estimate there to be 2 million ic that we entered this decade with many pre- ance of condominiums in their residential mix. square feet collectively in these unsurveyed dicting the development of a fifth regional mall properties. Many contain significant vacancy in Sarpy County, and we are actually approach- In summary, retail conditions are very stressed and they should not be ignored when evaluat- ing the end of the decade facing the likely pos- in the Omaha market as 2008 comes to a close. ing our market. In keeping with past practice, sibility of having only two viable enclosed malls Due to the continuation of the current econom- our survey results have been segregated into serving the entire market in the future. ic downturn and the constrained nature of the seven geographic submarkets and five size cat- credit markets, we expect the retail market will egories within each submarket. While the local development community has deteriorate further during 2009 and that vacan- typically been considered conservative in its cy will increase considerably. As would be As with most downturns, tenants have gained approach, it is interesting to note that there expected, the seeds of the future recovery are considerable strength in their negotiations with now exists approximately 45.4 square feet of being sown by the sudden contraction in the both potential as well as existing Landlord’s. On retail space per capita in Omaha market, while amount of new retail space currently under new deals, it is not unusual for quality tenants to the national figure is only 41.6 square feet per development. The economy will likely begin to receive a discount of several dollars off the ask- capita.