Retail vacancy rate estimate, 2/13/2019, REVISED 2/28/2019

Updated 2/28/2019 to remove a couple of properties that I thought were vacant, but are either occupied or in the process of being occupied.  I’ll put the new material in … whatever color you’d call this. 


One of the pro-MAC Town Council’s arguments for MAC is that we need MAC due to the poor state of retail and high retail vacancy rate in Vienna.  They’ve never bothered to provide any hard numbers regarding that.  But that’s the claim.

So, I figured I’d do my own crude estimate of the retail vacancy rate on Maple Avenue.   In the spirit that some information is probably better than no information.

Mostly, this was prompted by people pointing to the Rite Aid as some sort of failure of Vienna retail.  It’s not.  The Rite Aid was one of about 200 closed in the merger of Walgreen’s and Rite Aid — click here for an example newspaper article. So I see my fellow citizens running down Vienna retail, without doing even the simplest homework first.

I even know the benchmark number for this analysis.  Last time I looked, the retail vacancy rate for Falls Church was 4.5 percent.  So that’s what I’m going to compare my numbers to.


Methods

First, I’m not talking about office space.  The market for office space in Fairfax county is poor, and the most recent county-wide office vacancy rate I saw was 18%.  It is said to be particularly hard to rent the type of office space that exists on Maple — mostly older, smaller office buildings.  Vacant office space is an issue, in Vienna and across the county.  We have some big empty office buildings.

For example, judging by the daytime lights, I’d guess that the office space in the Tom Yum Thai building is no more than 20% occupied.  Which is a pity, because my guess is, the green and open space that you have there now is far more than what will exist if that one gets MACed.  But purely as a matter of economics, if I have guessed the occupancy rate right, and the rent cannot be dropped enough to fill the building and still cover operating costs, then one way or the other, that one’s coming down.  That sort of occupancy is not sustainable.

Second, I’m talking about ground-floor retail space only.  A handful of buildings have several floors, and a) I’m not quite sure what’s on the higher floors, and b) I don’t want to enter the buildings to see what that space is and whether it’s occupied.

Third, I am trying to identify retail property that is vacant and not actively in process to be re-occupied under standard commercial zoning.  For example, Merchant’s Tire and Rite Aid are not currently occupied.  But they already have the signs up for the new occupants.  They are not “distressed property” in any sense.  They are just making a normal business turnover under existing zoning regulations.

To be clear, that estimate EXCLUDES these buildings that are already currently empty, but are in process to be re-occupied under standard C1 zoning, including:

  • Taco Bell –> Starbucks
  • Rite Aid –> Dollar General
  • Long and Foster –> Wawa
  • Merchant’s Tire –> Virginia tire
  • Dead gas station –> live gas station plus convenience store
  • A handful of small properties around town whose size is such that they hardly matter.

The dead gas station is a bit of a cheat, because that’s conditional use and so required a bit more than just standard commercial zoning in Vienna.  But my understanding is, that’s been approved, so that’s in the commercial zoning pipeline to be re-occupied as soon as the rehab of the property is finished.  Wawa is not really a cheat, because as long as they can meet aesthetic standards (which they will), that’s by-right development.  I don’t think the Town can deny them a building permit, eventually.

Fourth, I want to treat retail lots in the MAC pipeline separately.  I want to calculate the vacancy rate for all buildings including MAC buildings, and then exclude the buildings in the MAC pipeline.  The point is to assess how much “distressed” retail is left, after we account for the sites to be redone under MAC.  I.e., if an impetus for MAC was to recycle those distressed retail properties, how much more of that job is there left for MAC to do?  (And, at this point, it is quite possible that owners are holding business empty in anticipation of large profits under MAC redevelopment.  I.e., MAC may now be causing vacancies, and owners try to transition from existing C1 commercial buildings to much more profitable MAC development.)

Fifth, at least at first, this is going to be an approximation based on the area of the lots these stores sit on, not the actual store floor areas.  In general, they all have surface parking, and in general, the same rules apply to the surface parking requirements.  This is a key shortcut, because I don’t want to take the time to lookup the floor area of every retail building on Maple.  But I know the acreage of all the lots in the MAC zone — 106 acres.  So if I adjust that down to account for non-retail properties in the MAC zone, I have a workable “denominator” for my vacancy rate without having to look up the details for every building.  I only have to look up lot sizes for the vacant retail sites.

Sixth, to do a census of vacancies, I took a video camera, attached it to a window of my car, and slowly drove the length of Maple last Sunday morning.  I drove through the shopping centers to look for evidence of vacancies, narrating the video as I drove.  I then played the recording, used Google street view, and the Fairfax County tax maps to check my results and get detail on lot sizes.

Seventh, I have to do a crude pro-rating for empty stores within shopping centers, or where two stores share a site.  All I have is the total lot size,  and at this stage, all I’m doing is a rough guess at (e.g.) estimating a vacant store’s size as a fraction of all stores in a shopping center.

Eight, a major piece of guesswork at this stage is the fraction of Maple acreage that is NOT for retail establishments.  I need that to work back from the known 106 MAC acres, to some estimate of MAC retail acres.  Patrick Henry Library, for example, is in the MAC zone but not retail.   Purely office buildings, ditto.  For this cut of the data, I’ll assume that 85% of the lot acreage on Maple supports retail establishments.

Finally, I remind myself that I use retail here as it is used in real estate discussions.   So this includes any site where anything is sold to the public.  Goods or services, meals, health care, yoga classes, and so on.  I am sure there are gray areas.  But that’s the gist of it.


Results

My crude inventory of buildings and vacancies, and my calculation of retail vacancy rate, may be found in the spreadsheet available via Google Drive, at this linkThe revised version is there as well, clearly marked.  The names I used for the various lots are often not the official names, but you’ll probably know what I’m talking about.)  The order of the inventory of buildings matches the methods I used — I drove from McDonald’s up to East Street surveying the south side of Maple, then drove back surveying the north side.

If you want to see the detailed calculations, download the spreadsheet.  I’m just going to put together a brief table of results, here:

Here’s a revised version of that table, taking into account three spaces that either weren’t vacant or that I know know are in the process of being filled, thanks to applications for signage processed at the most recent BAR meeting.  The numbers are a little lower, but there’s no material change in the conclusion, I think.

Using the original (first) table above, Let me take the next-to-the-last line first.  Including buildings that we can view as “standing empty waiting for MAC” (such as Marco Polo), the retail vacancy rate appears to be somewhere between 6% and (rounded) 8%, depending on exactly what fraction of the entire MAC zone is properties with ground-floor retail space.  So, including the MAC-pipeline vacancies, we have a retail vacancy rate this is, in fact, higher than the rate I believe holds for Falls Church.

But if we take the MAC pipeline buildings out of the equation — in effect, assume they are in the process of being taken care of — what’s left (bottom line) is a “distressed retail property” vacancy rate of between 3% and 4% (rounded).  Which is not-at-all out of line with what I believe the current rate is in Falls Church.

Let me remind you that this DOES NOT include office vacancies.  We do, in fact, have some large empty office buildings on Maple.

This really only addresses the argument that we need MAC to handle numerous Maple Avenue retail properties that would otherwise stand vacant without it.  That argument may or may not have been true in the past, but it is no longer true.  Once we account for all the existing vacant retail that has been “spoken for” under commercial or MAC zoning, we are left with less than 3% of the retail space on Maple as a) vacant and b) with no clear occupant or user in sight.  That level of retail vacancy does not constitute a crises of retail on Maple Avenue.

A final oddity is the strong north/south disparity in vacancies.  I don’t quite know what to make of that, other than the fact that most of Vienna is south of Maple.  To the extent that our retail is supported by our dollars, that might make some sense.  But there is also a vast difference in retail makeup between the two sides of the street — grocery stores and well-organized modern shopping centers south, more banks and catch-as-catch-can retrofitted retail space north.

Anyone who bothers to read the spreadsheet, and can find retail vacancies that I missed, is welcome to email any corrections to chogan@directresearch.com.