With a grocery-anchored shopping center recently sold and a new center just listed for sale, we’re starting to see renewed interest and activity in multi-tenant retail assets. As consumer spending starts to firm up, mid-market investors that are patient and willing to adapt to market realities can be expected to come out ahead in this sector as we look to 2013 and beyond. Simply put, with rent growth back on the agenda, the retail sector is expected to offer increased returns as other leased investments continue to lag.
This cautious optimism is based on the fact that a gradual housing sector recovery generates more jobs, which in turn generates increased consumer spending and more demandfor commercial real estate. Recent job creation, while fluctuating month-to-month, promises to push down vacancy rates and support future rent growth in the retail sector, which provides the necessary confidence to investors in retail assets. At the same time, banks continue to offer very attractive financing.
Buyer risk tolerance for retail assets is supported by the fact that a volatile stock market continues to drive the flight to quality as investors move capital out of risky investments and into safer ones. The yield in bonds and other financial instruments tightens in this type of market, making commercial real estate’s income producing and total return more attractive to investors.
For the long-term investor, it’s important to see where this whole sector is going from a macro perspective in order to make wise buying and selling decisions.
According to PwC US and Urban Land Institute “Emerging Trends in Real Estate Forecast for 2013,” retail real estate appears positioned to endure a very long, slow, but dramatic transformation in how and where people shop. The opinions expressed in the report were derived from more than 900 interviews and surveys of commercial real estate leaders.
While prime neighborhood retail will survive — thenecessity of shopping endures for groceries and pharmacy items — other types of retailers could use less store space per capita. As the big-box stores all look at how to downsize, landlords and tenants need to adjust how space is priced as marketing and promotion become more important to retailers than just direct in-mall sales.
If You Can Touch It in the Store, You’ll Buy More of It Online
Mall shoppers manned with apps will know what’s on sale, get coupons for discounts and find out about new products— potentially driving more business. Online approachesare turning retailing into an “omnichannel” business — the winners will embrace technology and integrate it into bricks-and-mortar platforms, realizing that e-commerce/in-store combinations beat stand-alone formats.
What remains clear is that owners and investors in multi-tenant retail will continue to benefit from thoughtful analysis and value-added brokerage services –- the reason why NortheastPCG is one of the region’s fastest-growing investment sales firms.