NORTHEAST SNAPSHOT, FEBRUARY 2008

Vermont Retail Market

Bradley

The commercial real estate market in Vermont remains a challenging market to navigate due to the extensive permitting and review process and significant environmental regulations. Retail is, however, a strong growth sector in the state, exceeding the historical average of 3.1 percent by a growth of 4.1 percent, or 185,000 square feet in Chittenden County. Retail vacancy is currently 4.8 percent, which is 2.4 percent less than the historic average of 7.2 percent. With approximately 4.05 million square feet of total retail space in the suburban market, and approximately 575,000 square feet of total business district retail space, it is interesting to note that the vacancy rate in suburban markets is nearly the same as the vacancy rate in downtown locations. A viable example of the general strength of the retail sector in Vermont. 

Continued growth is forecast for 2008, with a targeted growth rate of 6.8 percent, or 323,000 square feet of new retail, should all projects come to fruition and successfully obtain development permits. As a result of the latter, some of these projects may spill over into the 2009 calendar year.

The majority of the retail development in the state and region is taking place in Chittenden County, primarily due to the concentration of households present, the relative ease of access from other parts of the state and Canada and the existing concentration of established retail. As the Canadian dollar continues to strengthen in relation to our currency, there will be a significant increase in retail traffic from the Canadian market, which had seen declining numbers for the past 12 years.

With 151,000 square feet of retail space, the new Lowe’s Home Improvement Store in South Burlington was a significant portion of the 2007 growth. In Essex, Lowe’s currently has plans to redevelop an existing shopping center that was formerly anchored by Ames. This would involve a new 153,000-square-foot space, replacing the existing center’s 97,000 square feet. Lowe’s is a new retailer to this market, as are several smaller, niche retailers. Ace Hardware seems to be aggressively seeking opportunities, as well as Kinney’s, Dollar General and possibly Target.

In Milton, which has been an active development market, developers are set to expand an existing shopping center, which will add approximately 80,000 square feet. Also in Milton, Pomerleau Real Estate is set to develop a new 100,000 +/- retail center on Route 7. The development is slated to feature a newly expanded Hannaford supermarket as an anchor along with a mix of retailers, restaurants and service-oriented tenants. Essex-based developer, EuroWest Properties, recently crossed over the border into neighboring Plattsburgh, N.Y., to develop a project set within 70 acres that will include shopping and entertainment retailers and possibly housing. Other active developers in the Vermont market include JL Davis Realty, Malone Properties, SD Ireland and H.D.I.

As the market continues to grow, rental rates have remained generally stable due to a below average vacancy rate and steady demand. Rental rates in downtown Burlington range from $20 to $35 per square foot. In South Burlington on Dorset Street, Healthy Living recently leased 34,000 square feet. Depending on the location, premium suburban locations are currently between $18 to $22 per square foot, class A suburban space is between $12 to $16 per square foot, and class B suburban space ranges from $8 to $12 per square foot.

As supply of existing development opportunities contracts, the demand continues to grow. There remains significant opportunity for growth in Williston at Taft Corners, in South Burlington along the Shelburne Road/Route 7 corridor, and along the arteries of Dorset Street and Williston Road. These opportunities will be primarily in the redevelopment sector.

Isolated communities such as St. Albans, Newport and Milton will continue to grow due to the relative ease of access and the amount of available households willing to travel far greater distances than in other states because of Vermont’s agrarian background and settlement. Essex Junction is poised for a significant increase in square footage, primarily within the Essex Town Center area, which is controlled by Eurowest Properties and H.D.I.

Overall, the Vermont real estate market is continually evolving and subject to a vast amount of regulations that make it a challenging one for developers. In terms of sales, however, it is one that continually outperforms other states when quantified by our relatively low population of approximately 635,590 statewide. The success of larger retailers such as Costco, Wal-Mart, Home Depot, Lowe’s, Circuit City, Best Buy and Christmas Tree Shops has been nothing short of incredible. In addition,  smaller retailers are experiencing extremely favorable sales per square foot as well.

This viable market has been underserved and somewhat ignored due in no small part to pre-conceived notions about the strength of existing consumers. However the state is strong with average household incomes of $52,729 throughout Vermont and $63,895.00 in Chittenden County. In addition, employment rates are below the national average at 4.3 percent, and housing sales and demand remain strong with relatively little supply. Taxable receipts in Vermont totaled $1,520,883,000 for 2007, with an average yearly increase of 4.06 percent from 2002 to 2007; thus, Vermont will remain a feasible market for future development and growth.

— Yves Bradley is the vice president of Commercial Brokerage for Pomerleau Real Estate in Burlington, Vermont.

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