Middle Tennessee retailers gave up a little ground in the third quarter, when the region's vacancy rate moved up to 8.1 percent. That uptick came after a second quarter in which the amount of available space grew by more than 100,000 square feet. And unless leasing picks up soon, the vacancy rate will rise some more.

Quoted rental rates increased from second quarter 2012 levels, ending at $13.59 per square foot per year. A total of three retail buildings with 113,200 square feet of retail space were delivered to the market in the quarter, with 370,431 square feet still under construction at the end of the quarter.

Randyl Drummer at CoStar has published the first of two in-depth looks at how struggling and/or old shopping malls are being sold by the industry's largest players and repositioned or flat-out razed by smaller actors. The first step for many dealing with distressed shopping centers, says DDR Corp. President and CEO Daniel Hurwitz, is to acknowledge that a rebirth is not in the cards for all of them.

"There is a sense of reality that we all have to come to that there are projects that are not going to lease. Retail has a finite lifespan and once you reach that lifespan, you can put up all the signs you want, and charge as low rent as you want, but that doesn't make [tenants] want to take the space."

Middle Tennessee retailers leased more than 60,000 net square feet in the second quarter, says research firm CoStar Group. But they also left open for sublease more than 220,000 square feet, which pushed up the region's vacancy rate to 7.2 percent. Also testifying to the continued sluggishness: Rental rates slipped to $13.37 per square foot.

The Nashville-area retail market made some more steady progress in the first quarter, says research firm CoStar. Companies took up more than 130,000 square feet in the first three months of the year, pushing down the vacancy rate to 7.2 percent.

Real estate research firm CoStar Group says the Nashville area ended 2011 with a retail vacancy rate of 7.1 percent, down from 7.4 percent at the end of September. Companies moved into almost 300,000 square feet during the last three months of the year, with the reopening Opry Mills accounting for a good chunk of that number. With that complex coming fully online this spring, look for the regional vacancy rate to slide comfortably into the sixes by mid-year.

CoStar says it's up top and down below. And discounters like Big Lots and Dollar General are finding better deals in the property market.

Dropping lease rates have also allowed them to move into “A” retail space, said Meredith Adler, a senior equity analyst at Barclays Capital. This year, 25 to 30 of the 90 stores Big Lots is opening will be in “A” locations, Ms. Adler said.

Mark Heschmeyer at CoStar reports several sources are indicating that banks, particularly regional players, are stepping up their sales of distressed assets to clear their books. While sheer fatigue and regulatory pressure likely are playing a role, part of the trend may also be a reaction to increased demand from a number of investors.

"With the real estate recovery under way, more sideline capital are chasing the few opportunities on the market and the increased demand is prompting distressed debt owners to place more of their inventory on the market," the company said.

The commercial real estate market’s pricing has been a tale of two worlds with the largest metro markets attracting significant institutional capital and forcing prices upward over the first two quarters of 2010, while the broader market has continued to soften. This divergence of the two worlds may soon change as we are now witnessing a pause and softening even within the investment or institutional grade primary markets.