The vacancy rate for retail properties on Long Island (Nassau & Suffolk Counties only) has been increasing steadily since 2004-2005 when the vacancy rate was below 4%. One can drive through the older downtown areas and witness buildings that were constructed during 2006 and 2007 that are still vacant. Many older retail properties have experienced tenants closing stores, declaring bankruptcy, or defaulting on their rental payments. In many areas, this situation will not change because the basic demand generators for retail properties are not favorable for the foreseeable future. Except for prime properties in good locations, effective rents will remain flat or increase only slightly as the overall economic climate improves. Most retail projects are not cost feasible unless the properties are pre-leased. If one looks at the demographics of Long Island, it is quite easy to understand the basic underlying factors affecting many retail properties.
Demand For Retail Space – Population
In Market Analysis for Valuation Appraisals, the authors, Terry V. Grissom, Stephen Fanning and Thomas Pearson, illustrate two simple relationships that can provide an understanding of a retail market. First, the ratio of retail space in the Long Island market area to the total population can be analyzed. As indicated in the following chart, Long Island’s population is relatively stable, especially in Nassau County.
Where is the future population growth going to come from to drive the demand for retail space without a major change in zoning? The following chart indicates the percent change in population year over year.
Clearly, the chart indicates the trend in the population in Nassau County was negative in certain years during the last decade, while the overall population rate of growth in Suffolk County has been declining. The amount of retail space per person has been increasing gradually.
Demand For Retail Space – Households
The second ratio that is important to consider is the number of square feet of retail space per household. According to the US Census, in 2000, it was estimated that there were approximately 981,563 households in Nassau and Suffolk Counties. As the following chart indicates, the rate of growth in the number of households in the bi-county area has been declining and has been relatively flat in the last couple of years.
While the number of households is leveling off, the amount of retail space per household continued to increase based on estimates in 2010.
Demand For Retail Space – Aging Population
The population on Long Island in the bi-county area is aging which will change the trends in retail sales. The following chart indicates the change in the age of the bi-county population based on data supplied by Woods & Poole and analyzed by MacCrate Associates LLC.
The rate of the growth in the population over 65 has started to accelerate. Retail owners and developers must take into consideration the aging population in determining the use of vacant land or the repositioning of vacant retail space. The population under 24 is relatively unchanged, but some school districts are considering closing elementary schools which indicates that this age segment will continue to decline in the near term. This data suggests that the population between 35 and 64 reached a peak in 2008 or so.
Retail Sales on Long Island
MacCrate Associates LLC has compiled data from Woods & Poole to calculate the historical retail sales in Nassau and Suffolk Counties and to estimate retail sales going forward. The following chart summarizes the findings.
The trend was clearly positive from 1995 through 2006-2007 but declined drastically in 2008 and 2009. Recovery will be very quick initially, but will, then, probably level off with a gradual increase per year tied to inflation.
MDM Appraisals, LLC and MacCrate Associates LLC analyzed the retail sales tax receipts for the bi-county area and estimated the percentage change in retail sales from 2000 through 2009 as indicated in the following chart. It is important to note that the sales tax includes certain goods and services and may exclude certain goods and services. It is only used as a proxy for retail sales. The STDBonline actually estimates a lower retail potential but it does not include sales to businesses. It is extremely difficult to obtain the actual figures for retail sales that would provide a basis for estimating the income generated from retail space.
The Nassau County’s Comptroller’s Comments On The Proposed Nassau County 2011 Budget And Multiyear Financial Plan, dated October 6, 2010 indicated “The anticipated 2011 sales tax revenue will only recover to about the pre-recession 2008 levels.”
The situation in Suffolk County is similar. In the 2011 Capital Budget and Proposed Capital Program for 2011 to 2013, the Suffolk County Executive stated “Suffolk County has encountered high levels of real property tax delinquencies, significant levels of unemployment, and substantial decreases in sales tax revenues. In the early part of 2010, we are seeing some improvement but we have a long way to go.”
In Newsday, it was recently reported that in 2010, Nassau County collected $1 billion, or 6.7% higher than in 2009, according to Comptroller George Maragos, while Suffolk County indicated an increase of 6.9%. Increasing energy prices have had some impact on sales tax revenues but that does not indicate a demand for retail space.
MacCrate Associates LLC has developed the following estimates in the change in retail sales based on data from Woods & Poole.
While this indicates that retail sales jumped in 2010, it is expected that the rate of change will be relatively flat going forward at less than 2% in the bi-county area.
While certain communities will continue to experience low vacancy rates in the bi-county area, recent trends do not support strong demand for retail space on Long Island in general. Any new retail space that is constructed, generally, does not attract new business and only hurts existing retail businesses. In addition, the impact of internet sales on the demand for retail space is difficult to quantify, but many individuals prefer point and click versus going from store to store. If the population and the number of households remain relatively stable, the only increase in retail sales will be associated with inflation, specific items such as energy, or an increase in income per household. That cannot be anticipated in the near term.