Contraction spurs innovative use of space.

PositionRetailing

While retail vacancies will stabilize in many markets, new construction virtually has disappeared and lease rates have dropped 25% to 40% from peak levels. Still, it could be worse, maintains Colliers International--a global real estate services firm that operates in 61 countries--which has dubbed 2010 as the year in which "not as bad is the new good."

Challenges abound in the retail marketplace, and that sector will witness more retail failures, bankruptcies, and store closures, but the good news is that, amid this landscape, consumer sentiment and spending will begin to improve, thus bolstering the retail sector and re-igniting deal activity.

According to Colliers' "2010 Retail Trends and Opportunities" report, "It appears that retailers will likely face a period of years during which wave after wave of troubled assets will gradually be returned to the marketplace," says Garrick Brown, retail research director. "This will result in future pricing drops, but retail space values have already taken the lion's share of the declines that can be expected. Retail real estate is entering into what's best described as a 'not so fast recovery.'"

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The study's findings include:

* Year of the pop-up. One of the bright spots in retail has been the emergence of pop-up or temporary retail space. The entry of trendier retailers into the pop-up game has bolstered landlords' willingness to do very short-term leases.

* Cheaper rent translates into more urban activity. City storefronts' rents have dropped across the board and, consequently, many retailers previously priced out of such markets are uncovering opportunities, especially in New York, where street-front rents have dropped as much as 40%.

* "Ghost boxes" and "black hole space" join the lexicon. The collapse of big-box retailers such as Circuit City and Mervyn's has left these venues empty, spurring the creative reuse of these dark spaces, including conversions into theaters, libraries, and indoor go-kart facilities.

* Department store players shift to outlet mode. In the face of most modern department stores booking 2009 losses in the double-digits, and the fact that American consumers remain in frugal...

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