PORTLAND — A recovering economy brought some stability to the state’s largest retail market in 2010, a commercial real estate expert said today, although declining vacancy rates in Greater Portland were driven by a few large deals that mask an ongoing struggle to fill empty stores, restaurants and other spaces.

Much of the activity came from discounters, such as Marden’s and Goodwill, community banks including Bangor Savings and Gorham Savings, and casual restaurants such as Cracker Barrel and Chipotle Mexican Grill. The biggest retail news was the long-anticipated arrival of Trader Joe’s, which took over 24,000 square feet in Portland for its largest United States location.

But after breakneck growth through 2007, followed by the economic collapse of 2008 and 2009, last year’s “normal” market was welcome, according to Mark Malone of Malone Commercial Brokers.

“After 2009, an ordinary market was pretty comforting,” Malone said.

Malone made his comments to more than 500 brokers, bankers and other professionals at the annual Maine Real Estate & Development Association forecast conference. Taken together, the presentations provided an overview of Maine’s economy through the lens of development, and a glimpse at how 2011 is shaping up.

With consumer spending driving the national economy, the health of the retail sector is a key barometer.

Greater Portland’s retail vacancy rate fell from 10.8 percent in 2009 to 8.34 percent last year, while the national rate climbed from 11.9 percent to 13 percent. But most of the improvement in Portland came in the best spaces, with stronger tenants and better locations, Malone said. Vacancies in lower-tier properties actually rose. To retain and attract tenants, landlords continued to offer discounts and free rent, although lease rates are beginning to firm.

New retail construction was way down, with only seven projects started. Half of the activity was a 34,350-square-foot shopping center, Western Avenue Crossing, that’s under construction in South Portland.

Looking ahead, Malone expects primary vacancy rates to keep improving, but secondary properties will struggle. Lease rates will stay flat. New construction will be rare; there’s not much building demand, with 500,000 square feet of vacant retail space.

Markets in other sectors share similar challenges. For instance:

Homes sales: Overall volume fell to 2002 levels. Median prices rose to $175,000 in June, but slid back to $172,500 by December, according to Mike LePage, a broker at Re/Max Heritage. The market won’t stabilize until foreclosures and defaults ease up, financing improves and consumer spending resumes. This year will bring modest growth in sales, prices and interest rates, LePage predicted.

Multi-family properties: More units came on the market, but well below pre-recession levels, according to Brit Vitalius of Vitalius Real Estate Group. A quarter of sales were bank-owned or short sales, and the median price for these transactions was roughly 66 percent of the market rate. Vacancy rates are healthy in Portland, below 5 percent, but range up to 15 percent in Biddeford.

Hospitality and vacation properties: Buyers are focused on vibrant coastal markets, such as Kennebunkport, Portland, Camden and Bar Harbor, according to Daren Hebold of Daigle Commercial Group. Sale prices were led by the 46-room Sea Chambers Motel in Ogunquit, for $6 million.
Last summer’s great weather boosted visits, but a slow recovery in group business travel and leisure travel will continue to challenge owners this year.

Real estate’s fragile condition was underlined by Charles Lawton, chief economist at Planning Decisions Inc.

Home prices fell during the 1990-91 recession, Lawton noted, but sales picked up in the recovery. In this recession, sales rose last year but have begun falling again. Lawton, a columnist for the Maine Sunday Telegram, also pointed out that commercial construction continues to be very weak and the labor force has not rebounded.

These and other factors raise questions in 2011, he said, about whether the bursting of the housing bubble fundamentally changed how Americans view housing.

Staff writer Tux Turkel can be contacted ats 791-6462 or
[email protected]