SVN® Shopping Mall Report

Posted on September 6, 2023September 6, 2023 by SVN Staff

By Cameron Williams, Director of Research, SVN International Corp.

The shopping mall, once considered the pinnacle of consumerism, has been a much-maligned retail class over the past decade. In a 2017 Credit Suisse report, it was predicted that 1 in 4 malls would be closed by 2022. Ironic that most malls have outlasted that bank. While iconic mall-based retailers like The Sharper Image and KB Toys are long gone, the American mall is far from dead. In a recent study conducted by Coresight Research it was reported that shopping malls, especially high-end malls, are experiencing positive growth across nearly all key performance indicators and that with omni-channel sales strategies on the rise these trends are expected to continue into the future.

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Looking to the Future: The Disruption of COVID-19 and the Transition into the Next-Normal

Posted on March 24, 2021 by SVN

Exactly one year ago, eight governors across the US took the initial move to close bars and restaurants, and the Dow Jones posted its largest one-day drop ever, finishing down a record 2,997 points. The world as we knew it was hitting the proverbial fan. New incoming information —none of which was encouraging — came across our screens at a frantic pace, causing our stomachs and portfolios to drop in tandem.

With a full year now passed by in the COVID economy, the universe of uncertainty has thankfully compressed. While it was not an advanced degree that any of us had applied for, the pandemic has imparted a lifetime of lessons, offering clear clues about the future of commercial space demand and the ways we as humans interact with the built environment.

Macroeconomy

Starting first with the economy as a whole, I know we have all become a bit numb to sideways numbers during the past year, but to dig ourselves out of this hole, it is important to understand just how deep we are. Early last year, while we were all still finishing our champagne and settling in after the holiday season, the Congressional Budget Office released its estimates of 2020 economic growth, serving as a reliable benchmark of where the economy would have stood without the pandemic. Actual output last year fell short of the CBO’s early 2020 forecast by $1.2 Trillion Dollars, good for an average loss of $3,560.06 for every American.

More workers filed for initial unemployment claims in the first nine weeks of this crisis than during the entirety of the 2007-2009 recession, and the unemployment rate hit a stratospheric high of 14.8% last April. Through the most recent Jobs report, it looks like we are once again starting to see some positive momentum toward an eventual recovery. The civilian unemployment rate ticked down 6.2% through February as the economy added back 379,000 jobs. We remain a long way to go, but between vaccination rollout and the onset of warmer weather, the W-shaped recession we have seen so far should have enough fuel in the tank to prevent another near-term downturn.

Multifamily

An often-peddled refrain during the early days of the pandemic was that the multifamily, and apartment sector as a whole, would maintain its stability by the simple fact that people will always need somewhere to live. If anything, the same optimists argued that the resiliency of cashflows could actually improve as renters were spending more time in their homes due to involuntary quarantines. With a year of data available now supplanting conjecture, we find that residential rentals have indeed performed up to expectations. No, conditions have not been ideal, and distress is not too hard to find, especially in gateway markets. However, compared to worst-case scenarios, the apartment sector has lived up to its reliable bedrock status. According to the National Multifamily Housing Council’s rent tracker, which follows the performance of more than 11 million professionally managed apartments, 93.5% of renter households paid rent in February— only a 1.6% drop off from the same month last year. These data may, however, likely understate some sector-level underperformance, as they do not include vacant units or self-managed “mom-and-pop” properties. According to Freddie Mac’s latest forbearance report, we know that small balance originations, which tend to cater to the “mom-and-pop” investor class, make up 75% of loans in forbearance.¹

The CDC’s eviction moratorium remains a pressing challenge for the industry and an impediment to its return to pre-pandemic health. The market for rental housing is a circular flowing ecosystem between lenders, investors, and renters. There is no net-positive corrective policy that achieves more benefit than harm by breaking the symbiotic process, much as the moratoriums have. The NMHC offers that moratoriums “fail in their purpose of addressing renters’ underlying financial distress” and “jeopardize the stability of housing providers and the broader housing market.” Despite two different federal judges ruling against the CDC policy in the past month, the ban remains in place. There are, however, green shoots forming, which could signal a return to more normal conditions in the near future. At the end of this month, the moratorium is scheduled to expire— a deadline that we should accept with a coarse-grained piece of salt. Nevertheless, the appropriations bill passed at the end of the year, and the American Rescue Plan of 2021 passed last week collectively set aside $46.6B for rental assistance programs. A CPPB analysis of Census Bureau survey data finds that roughly one-in-five renter households are behind on rent— a crisis that should see meaningful relief as funds are released.²

The permanence of COVID-induced migration will be a hot-button topic as more jabs land in arms. Taken together, the trifecta of New York, California, and Illinois, the states that are home to the three largest US cities, collectively lost more than 275,000 residents in 2020. The human density that has historically attracted demand toward superstar cities has had the complete opposite effect in the past year. Without accessible cultural amenities or the need to be in an office Monday through Friday, a significant share of the workforce became untethered to their home cities and have made their way toward the exit. According to CoStar, New York, LA, San Francisco, Chicago, Seattle, Boston, and Washington DC are all among the list of cities to post year-over-year declines in asking rents through Q4 2020.

While the outgoing flow of residents has been lumped together as one homogenous cohort, there appear to be at least two major groups leaving. The first group of COVID-nomads is defined by those that already had eyes towards more affordable and spacious housing options over the next couple of years. Given the urban context in 2020 and the attractively low borrowing costs, many of these renters simply said, “Hey, why not now?” and moved up their progression timeline. These are the types of households that are more likely to be buying baby carriages before the next time they step on a subway, and their transition out of major metros is probabilistically permanent. The second group contains those who are transient, often early into their careers, working remotely, and still seeking the lifestyle amenities they had enjoyed pre-covid. Watching how this group behaves as large companies start calling workers back into the Office and cities look more like their pre-pandemic selves will be telling.

Office

Today, there is no property type subject to more speculation than the Office.

Unlike multifamily, Retail, and industrial, where COVID has mostly magnified pre-existing trends, the pandemic has led to rampant reimagination in the office sector. Our understanding of how both firms and workers interact with physical office space to optimize productivity is permanently changed. According to the Census Bureau’s Household Pulse Survey, an estimated 38% of working American adults have transitioned to remote work in some capacity due to COVID. The share is even higher in large office markets like New York and Los Angeles, rising to 47% and 45%, respectively. En Masse, The American Workforce traded morning commutes for Zoom links, an illuminating natural experiment that has challenged the Office sector’s core-assumptions. When PwC launched its remote work survey in June, 44% of employers thought that the transition to remote work has allowed their teams to be more productive than before the pandemic.³ When the same employers were polled again in December, the share climbed to 52%, indicating that not only has a consensus emerged, but that efficiency has improved following the initial learning curve. The realization that companies can not only maintain but actually improve performance through a remote infrastructure is a ‘no turning back,’ Pandora’s box type of moment. It should therefore come as no surprise that, according to the same survey, only 21% Of US executives think that a full five days in the office every single week is the best setup to maintain a strong corporate culture.

The likelihood that total office space demand will have a smaller footprint in the post-pandemic world is a consideration that we cannot afford to take lightly. A Fitch research report released just last week estimates that an additional 1.5 work-from-home days per worker would lead to a 15% reduction in property-level net cash flow— a development that would meaningfully recalibrate our understanding of risk and value. Given the long-dated lease structure common throughout the sector, it will take a few years for emerging preferences to filter through fully. Moody’s Analytics REIS forecasts that vacancy rates are likely to rise to near-record levels through 2023 before beginning a gradual recovery in 2024.

Of course, not all metro-level office markets will move as one. Some of the migratory demand that is leaving large cities and contributing to localized weakness ahead will also lead to strength in other markets, particularly in major Metro adjacent suburbs. According to Real Capital Analytics, Central Business District-located Office properties posted a 0.2% decline in value for the year. On the other hand, suburban located office assets saw valuations continuing to grow at a healthy 6.6%.

Industrial

The industrial sector remained the undisputed top performer of commercial real estate through an otherwise challenging 2020. Secular tailwinds, such as e-commerce adoption, grew from a healthy gust to a sustained hurricane force. Over the past decade, online retail sales have increased by an average of 15.2% annually. Brick and mortar retail sales over the same period have only grown by an average of 3.4% per year. The share of total Retail sales satisfied by online orders has steadily risen, entering 2020 At 11.3%. In the second quarter, as nonessential retailers across the country closed their doors, this share skyrocketed above 16%. While the share has reverted down to 14%, the pandemic has permanently transitioned some in-person retailing onto online platforms. Online grocery delivery services, a concept that had faced greater consumer resistance than other E-platforms before 2020, stood uniquely positioned to benefit from the demands of a lockdown economy. According to grocery e-commerce specialist Mercatus and research firm Incisiv Projects, online grocers accounted for 3.4% of all US grocer sales in 2019, before swelling to 10.2% in 2020.⁴ Further, the same study estimates that online groceries will satisfy 21.5% of domestic demand by 2025. Surging demand for E-grocers also means an increased demand for distribution and fulfillment facilities in close proximity to consumers. In the most recent Emerging Trends in Real Estate report, fulfillment facilities ranked as the subsector with the best prospects for future investment and development opportunities.

Another source of new industrial demand can be traced to the supply chain disruptions experienced this last year. The pandemic exposed critical sensitivities, and e-commerce retailers are looking to better safeguard their ability to match inventory supply with order demand. Doing so has meant a transition away from “just in time” distribution models in favor of “just in case” models instead. The latter requires excess warehousing space to stock contingent inventory.

Retail

There was no shortage of pessimism surrounding the retail sector heading into 2020, even before there was a pandemic to contend with. Pre-pandemic, Retail was in the midst of what was widely expected to be a 10-year shakeout and a painful rightsizing process. As noted in the 2021 ULI / PwC Emerging Trends Report, the US retail sector had three major headwinds going into last year: the US has more retail square footage per capita than any other country in the world, an increasing share of core-retail activity has transitioned online, and domestic consumers have experienced a long-term stagnation of wages. Concepts that were on the path towards obsolescence, with hopes of maybe squeezing out a few more years of economic solvency, are those that have struggled the most during COVID— none more so than department store retailers.

While the outgoing companies will argue otherwise, a case can be made that 2020’s pain will help the retail sector pave a quicker path back to recovery. The sector has gone from Darwinism to ‘Darwinism on steroids.’ Though, before we can imagine a radical future where physical retail demand sits just a bit higher than supply, the existing glut of obsolescent space needs to find adaptive reuse. After all, not every struggling mall will be turned into an Amazon distribution center. Lifestyle centers, where fitness centers, housing units, and mixed Retail are blended together, are one of the leading concepts to aid in re-positioning and re-absorption. According to Real Capital Analytics, Lifestyle Centers have an average price per square foot that is almost three times higher than average assessed for Mall assets, reflecting some of the value that can be recaptured through re-positioning.

As Retail continues to match physical footprints with the forward-looking consumer behavior, the short-term reversion back to normalcy will at least provide some much-needed relief. Cabin-fever-consumers armed with unspent stimulus checks should give Retailers a potent shot in the arm, even if the upside effects are only temporary.

Outlook

Whether it be the public health front, the economy, commercial real estate, our lives in general, or how all the above are inexorably linked, 2021 has all the makings of a year defined by recovery. The Federal government’s push to have vaccine availability for every US adult by May 1st means that herd immunity is not too far behind.

Between the safe resumption of our pre-pandemic lives, the commitment by the Federal Reserve to maintain low interest rates even as inflation pressures rise, and the unprecedented level of stimulus in the hands of consumers, a perfect storm of economic momentum is brewing just offshore. If anything, there is increasing concern that the economy has the potential to overheat in the year ahead as too much fuel enters the fire all at once. According to the February and March iterations of the Wall Street Journal’s Economic Forecasting Survey, a majority of leading economists believe that this year will have more upside risk than downside risk, and more than 80% think that the newly passed stimulus will generate inflation higher than the Fed’s 2% target.

In many ways, we as an industry remain in wait-and-see mode, with questions over a return to the office timing and rightsizing are still swirling overhead. Although, overly conservative and reactive strategies rarely make winning formulas in Real Estate. Now is the time for landlords to engage tenants and companies to engage employees about emerging preferences, then execute on a strategy. If 2020 has taught us nothing else, it’s that the pace of change can accelerate quickly, and falling behind the curve of innovation is a costly and often un-correctable mistake.

Endnotes
1. https://mf.freddiemac.com/docs/January_forbearance_report.pdf
2. https://www.cbpp.org/research/housing/housing-assistance-in-american-rescue-plan-act-will-prevent-millions-of-evictions
3. https://www.pwc.com/us/en/library/covid-19/us-remote-work-survey.html
4. https://www.supermarketnews.com/online-retail/online-grocery-more-double-market-share-2025

SVN’s Clay Russell Races Away With SCCA Runoffs Championship

Posted on November 20, 2018 by SVN

SVN’s own racing champ!

Clay Russell, an Associate Advisor with SVN | BlackStream in Greenville, South Carolina, has attained one of the most coveted prizes in American amateur motorsports, the Sports Car Club of America (SCCA) Runoffs national championship. The race was held October 16-21, 2018 at the Sonoma Raceway in Sonoma, California.

Clay Russell wins SCCA Runoffs Championship!

Russell won the national championship in his Angry Llama Spec Racer Ford (SRF). Spec Racers are a single seat, open cockpit racers powered by four-cylinder Ford engines and are capable of a 150-mph top speed. Their “Spec” designation means all cars are the same, putting emphasis on the driver’s ability and competitiveness. Winning in SRF is frequently measured in feet as opposed to car lengths.

In addition to his championship run this year, Russell is the only SRF driver to win a SCCA Super Sweep award by winning the Southeastern Majors Conference Championship, the Hoosier Tire Super Tour points title, and the Runoffs. In 2017, he was Southeastern Majors Conference champion and finished fifth in the Hoosier Tire Super Tour.

Clay Russell has been actively racing for six years. He has steadily improved from his sixth-place finish in the SCCA 2016 Runoffs, and his fourth-place finish in the 2017 Indianapolis Motor Speedway Runoffs. He joined SVN | BlackStream earlier this year, where he specializes in the retail market.

About SVN| BlackStream

Formed in 2014, SVN | BlackStream operates franchises in Greenville, Columbia, Charleston and Asheville, covering the Carolinas, SVN | BlackStream has more than 30 advisors providing commercial real estate services to national investment funds, regional property owners and local, experienced investors and owners. All SVN^®offices are independently owned and operated. For more information, visit www.svnblackstream.com

Want to put your career into high gear and race to the top of the CRE world? Check out job opportunities at SVN.

Top 3 Reasons to Invest in the CRE Retail Sector in 2017

Posted on December 19, 2016 by SVN

The retail real estate market, having long been the most segmented and divided sector of commercial real estate, was the most uniquely impacted in the last downturn and recovery. Grocery anchored neighborhood centers and free standing national credit retail properties have performed exceedingly well while regional malls, power centers, and non-anchored neighborhood strip centers have lagged in terms of price and rents. The slow economic recovery and ever growing share of e-commerce has made investment in retail real estate less desirable to sectors like multifamily and office. However, with this trend most likely changing in the next few years, retail may be one of the best investment opportunities for 2017. Here are three reasons this could be the case.

First, the economy may have now turned the corner and reentered a faster growth phase. GDP was last estimated to be growing at an annualized rate of 3.2% and unemployment has fallen to 4.6%. Retail sales continues to set new all-time records almost every month with annualized growth rates routinely near 3% according to the Census Bureau. As more people work due to the growing economy, they will have more money to spend. In fact, measures of consumer confidence, median household income, and total personal income have all shown strong growth and improvement in the last several months causing some to forecast yet another record breaking year for holiday sales. Regardless of online shopping, people are spending more at all types of retail establishments. Given that there has been a relatively low rate of new retail construction, it is almost unavoidable for retail rents and occupancies to rise resulting in the rising profitability of retail real estate investors. This rate of rent and occupancy growth may be the fastest of all property sectors in 2017 (at least for some markets).

Second, the retail landscape appears better equipped to compete in the new “digital” sales marketplace. Traditional retail tenants are now embracing an “omnichannel” approach, meaning dual focus on in-store and online sales, and recent research by the International Council of Shopping Centers (ICSC) indicates it is starting to show success. According to ICSC, 80% of Black Friday/Thanksgiving weekend shoppers made purchases at physical stores and 28% of those who purchased goods online opted to pick up the orders at a physical store (i.e. “site-to-store”) where 64% of those shopper made additional in-store purchases. Thus, the view that a store can be “online only” appears to be diminishing. In fact, even online giant Amazon is now actively seeking to open physical stores to facilitate order pick-up and enhance impulse purchases. In short, the storefront is not “dead”, just redesigned. Additionally, some categories such as home improvement, furniture, and restaurants cannot be easily moved online. All of these sectors are showing growth in sales and even store openings.

Third, many retail properties are located on great pieces of real estate in premier locations. There remain potential shortages for all types of commercial real estate including office, self-storage, heath care, and even apartments in many markets and sub-markets across the country. Retail sites are potentially the best redevelopment and repurposing sites in many in-fill markets. Retail can be converted to office/health care uses with very little costs; even self-storage is feasible for large vacant anchor spaces. Meanwhile, getting new sites approved for development is taking longer and costing more in many, if not most markets and, as municipalities seek to “beautify” older properties the redevelopment of existing buildings is getting relatively easier. Therefore, many retail sites, which are typically relatively low intensity uses, are actually easier to build on than raw, un-entitled land.

With an in-depth understanding of the local market, an investor can purchase a substantial income stream today with a potentially great exit strategy in the future. The key is creative vision and a good understanding of the micro forces in the sub-market (think location, location, location).

Spokane, WA | 2016 Top #CRE Markets to Watch: Retail

Posted on October 5, 2016 by SVN

SVNIC’s 2016 Market Outlook Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2016. Today we are delving into the 2016 Top Retail Markets to Watch. Not the largest or the most actively contested markets, the 2016 Retail Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Retail Market to Watch: Spokane, WA

The economy of Spokane is attempting to recreate itself from a natural products producer to a more high tech and business-focused cluster but, so far, the results remain mixed. Unemployment has grown recently to 7.7% in January ‘16 but new job creation is occurring at a 1.7% annualized rate, according to the Bureau of Labor Statistics. Top sectors adding jobs include Information, Professional and Business Services, and Educational and Health Services, which are growing at annualized rates of 13.8%, 6.3%, and 3.6%, respectively. Population grew 4.2% from 2010 to 2015, according the Census Bureau, which means that overall demand for retail could grow. Still, sustained reductions in unemployment will need to be seen for significant growth to occur. As the tech industry grows, this is possible.

Stay Updated…

Over the next few weeks, the SVN Blog will be featuring posts that will focus on each of the top markets to watch for industrial, multifamily, office, and retail properties. SVN Advisors from selected top markets have provided their industry expertise regarding what to look out for in their specific market in the coming months. Don’t miss out on these important insights – subscribe to the SVN Blog on the right side of the blog homepage.

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Spokane, WA is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

San Francisco, CA | 2016 Top #CRE Markets to Watch: Retail

Posted on September 28, 2016 by SVN

Top Retail Market to Watch: San Francisco, CA

San Francisco has been the iconic American boomtown for centuries and this trend continues today as technology firms have helped lead record job growth that has brought the unemployment rate down to 3.9% in January ‘16 as employment continues to grow at a 3.6% annualized rate, according to the Bureau of Labor Statistics. San Francisco is also a major port and tourist destination, thus the demand for retail real estate should grow strongly in 2016 and beyond. According to the Census Bureau, population has grown by 5.9% from 2010 to 2014, which is quite impressive given the limited land mass of the city and topography of the Bay Area. As rents and home prices rise, expect San Francisco retail real estate to continue gentrifying as well, causing rent spikes in many sub markets.

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”San Francisco, CA is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

Portland, OR | 2016 Top #CRE Markets to Watch: Retail

Posted on September 14, 2016 by SVN

Top Retail Market to Watch: Portland, OR

Portland has experienced surging new employment in 2015 that has brought the unemployment rate down to 4.7% as of January ‘16, while new jobs are being continually added at an annualized rate of 3.1%, according to the Bureau of Labor Statistics. This is due to a well-diversified economy and quality of life that will also fuel growth in Portland’s retail real estate market. Top sectors for growth include Information, Leisure and Hospitality, Education and Health Services, and Construction, all growing at annualized rates of 9.4%, 4.6%, 4.5%, and 3.9%, respectively. As the population continues to grow as it has done by 6.1% from 2010 to 2014, according the Census Bureau, there will be greater needs for all real estate including retail establishments in 2016 and beyond.

Advisor Insights: SVN | Bluestone & Hockley in Portland, OR

SVN’s Portland-based Advisors at SVN | Bluestone & Hockley have some retail market highlights to share. Here’s what to look out for in Portland’s retail market in 2016:

Increase in on-market for sale properties
Decline in available SF for lease
Gradual increase of retail lease rate

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Portland, OR is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

San Diego, CA | 2016 Top #CRE Markets to Watch: Retail

Posted on September 7, 2016 by SVN

Top Retail Market to Watch: San Diego, CA

San Diego has steadily grown since the recession with now record levels of employment that have brought the unemployment rate down to 4.7% in January ‘16, while new jobs continue to be added at an annualized rate of 2.8%, according to the Bureau of Labor Statistics. Population has also grown 6.1% from 2010 to 2014 according to the Census Bureau, as people choose San Diego for its high quality of life and climate. Its diverse economy from military and shipping to research and finance has allowed demand and fundamentals for retail real estate to grow with a trend that should persist through 2016 and beyond. The top sectors for job gains are Construction, Education and Health Services, Professional and Business Services, and Manufacturing, with annualized growth rates of 7.4%, 3.9%, 3.6%, and 3.4%, respectively.

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”San Diego, CA is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

Orlando, FL | 2016 Top #CRE Markets to Watch: Retail

Posted on August 31, 2016 by SVN

Top Retail Market to Watch: Orlando, FL

Orlando continues to be one of the fastest growing markets in the nation, fueled by record tourism and new business openings and relocations. Unemployment remains stable at 4.7% as new jobs are being created at a 4.9% annualized rate, according to the Bureau of Labor Statistics. Population has also boomed by 9.9% from 2010 to 2014, according to the Census Bureau, creating the demand for more retail real estate. Top employment sectors include Construction, Professional and Business Services, Manufacturing, Educational and Health Services, and Leisure and Hospitality, with annualized growth rates of 14.5%, 8.6%, 7.3%, 4.6%, and 4.4%, respectively. This broad-based growth will enhance the health of the retail real estate sector in 2016 and beyond for both tourist-focused and resident-focused establishments.

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Orlando, FL is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

Nashville, TN | 2016 Top #CRE Markets to Watch: Retail

Posted on August 24, 2016 by SVN

Top Retail Market to Watch: Nashville, TN

Nashville’s economy continues to boom, as employment sets new record highs with continued 4.0% annualized growth that has brought the unemployment rate to a low of 3.7% as of January ‘16, according to the Bureau of Labor Statistics. This corresponds with a 6.7% increase in population from 2010 to 2014, according to the Census Bureau. This growth is putting pressure on retail real estate as fundamentals improve in face of steady growth; a trend expected to persist in 2016 and beyond. The fastest growing employment sector is Mining, Logging, and Construction followed by Professional and Business Services, then Financial Activities and Information, with annualized growth rates of 9.4%, 8.7%, 4.5%, and 4.4%, respectively. This type of broad-based job growth is sure to boost all real estate sectors including retail.

Advisor Insights: SVN | The Genesis Group in Nashville, TN

SVN’s Nashville-based Advisors at SVN | The Genesis Group have some retail market highlights to share. Here’s what to look out for in Nashville’s retail market in 2016:

Strong demand for retail space
Declining vacancy
High rents
Competition for space
Very little inventory

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Nashville, TN is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

Miami, FL | 2016 Top #CRE Markets to Watch: Retail

Posted on August 17, 2016 by SVN

Top Retail Market to Watch: Miami, FL

After facing a deep real estate and economic recession, Miami has fully recovered, has more employment than ever, and continues to grow at a 2.9% annualized pace, while unemployment remains stable at 5.2% as of January ‘16, according to the Bureau of Labor Statistics. This growth has been led by a new construction boom fed by foreign investment that has construction jobs growing at a 10.5% annualized rate, making it the far and away fastest growing sector. Population has also grown by 7.8% from 2010 to 2015, according to the Census Bureau, and is expected to continue growing, fueling the need for more retail development. Miami’s joint tourism, retirement, and business growth should force rental rates up and vacancies down in the retail real estate sector for 2016 and beyond.

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Miami, FL is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

Las Vegas, NV | 2016 Top #CRE Markets to Watch: Retail

Posted on August 10, 2016 by SVN

Top Retail Market to Watch: Las Vegas, NV

As tourism growth has once again led Las Vegas to new heights in overall employment, the unemployment rate is still falling as it sits at 6.5% as of January ‘16 while jobs are being added at a 2.5% annualized rate, according to the Bureau of Labor Statistics. Construction is the fastest growing employment sector at an 11.0% annualized rate followed by Education and Health Services at 8.1%. Las Vegas took a pause in population growth due to the recession but the pace is likely to grow in 2016 and beyond; still, the city grew by 5.0% from 2010 to 2014, according to the Census Bureau. Growth in tourism will spur the need for tourist-focused retail in popular locations like The Strip; however, overall growth will also increase demand for retail to service the local population. Over time, Las Vegas is likely to diversify from tourism and become a more balanced economy.

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Las Vegas, NV is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

Charlotte, NC | 2016 Top #CRE Markets to Watch: Retail

Posted on August 3, 2016 by SVN

Top Retail Market to Watch: Charlotte, NC

Charlotte has expanded its employment base steadily since the recession bottomed in 2010 and currently has a relatively low 5.3% unemployment rate, as of January ‘16, and 2.8% annualized growth of new jobs, according to the Bureau of Labor Statistics. The region has also grown population by 10.1% from 2010 to 2014 according to the Census Bureau, making it prime for expansion and development of retail real estate. Major growing employment segments include Mining, Logging, and Construction, Financial Activities, and Leisure and Hospitality with 6.4%, 4.8%, and 4.6% annualized growth, respectively. As Charlotte continues to be a popular place to work and live, more firms are likely to enter the market, including those seeking to establish corporate headquarters. Despite these positive forces, North Carolina’s recently enacted “bathroom law” threatens to reverse economic growth as businesses and consumers look elsewhere to avoid the perceived discriminatory law; this could cause pain to the retail sector for the rest of 2016 and beyond if not fixed.

Advisor Insights: SVN | Percival Partners in Charlotte, NC

SVN’s Charlotte-based Advisors at SVN | Percival Partners have some retail market highlights to share. Here’s what to look out for in Charlotte’s retail market in 2016:

Increasing property values
Ongoing new development of grocery anchored centers
New grocery stores entering the market
Target will start expanding again
Continue to see high demand for investment properties

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Charlotte, NC is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

Austin, TX | 2016 Top #CRE Markets to Watch: Retail

Posted on July 27, 2016 by SVN

Top Retail Market to Watch: Austin, TX

Retail real estate should perform well in Austin in 2016 and beyond, as this dynamic economy continues to grow and diversify. According to the Census Bureau, the population of Austin has grown 12.5% from 2010 to 2014. Not surprisingly, the economy looks stellar with a 3.2% unemployment rate as of January ‘16 and jobs are growing at 4.7% annually, according to the Bureau of Labor Statistics. The best sectors for job growth are Mining, Logging, and Construction and Leisure and Hospitality, growing at 11.0% and 9.2% annualized rates, respectively. These forces will keep new residents locating in the metro region and businesses expanding. Retail demand will follow the population and should continue expanding in 2016 with ever-increasing fundamentals.

Advisor Insights: SVN | Tamarack in Austin, TX

SVN’s Austin-based Advisors at SVN | Tamarack have some retail market highlights to share:

Gateway Cities like Austin continue to benefit from diverse job creation ranging from service jobs to higher-end STEM (science, technology, engineering and math). It remains an attractive place to live for all generations. Due to the continued numbers of people moving to Austin all property types are attractive but retail properties will continue to be the most favorable investment type.

Austin has a tight market for space so we will see most new construction in sub-markets of Austin such as Lakeway, Leander and Cedar Park.

With average rental rates averaging $20 – $23.50 per square foot, rates are expected to increase by more than 4% by the end of 2016.
Values in the retail market are expected to increase by 2% – 3.9% by year end.
Absorption has been positive for the previous five years and is expected to increase to an estimated 350,000 square feet within 2016. With slightly more than 300,000 square feet of retail space expected to be constructed by the end of 2016 the occupancy rate will also increase above its current 94% rate. Retail properties that are under construction, planned and proposed represent a 3% growth to the current Austin market.
Cap rates are currently 6.8% – 7% and are expected to stay relatively flat for the next 6 months.

Stay Updated…

To read more on other top retail markets, download the full version of the 2016 Retail Market Outlook report here.

[bctt tweet=”Austin, TX is one of 2016’s top retail #CRE markets to watch.” username=”svnic”]

SVN Restaurant Resource Group Gears Up for 2016

Posted on February 18, 2016 by SVN

Focusing on Mixed-Use Property, SVN Restaurant Resource Group Starts the Year with New Goals in Mind

After a record-setting year of sales and leasing volume, the SVN Restaurant Resource Group is heading into 2016 with refined focus on mixed-use assets. The team has identified 25 ‘high-opportunity’ retail corridors in Chicago and nearby transportation oriented suburbs.

Why Mixed-Use?

Mixed-use properties in Cook County offer a unique tax advantage over strictly commercial properties. A mixed-use property’s assessed value is based on 10% of market value while a commercial property’s assessed value is based on 25% market value. Based solely on classification, two properties with identical market values may have dramatically different real estate tax liability.

Better federal tax depreciation benefits are also available for mixed-use property owners. For instance, if residential rentals account for more than 80% of the asset’s overall income, the property improvements are depreciated over a 27.5 year period versus a typical 39 year period.

Investors of mixed-use buildings are often entrepreneurial, making it a “natural fit for our personalities and results-driven market strategies,” as described by SVN Advisor Marcus Sullivan.

High-Opportunity Neighborhoods

SVN Advisor Tim Rasmussen details the methodology in determining the 25 target corridors: “We recognized several common characteristics in neighborhoods where our team and clients were most successful: well-defined retail corridors, shifting demographics, high walkability scores, and close proximity to rapid transit.”

It is estimated that over 50% of neighborhood retail/commercial space is occupied by restaurant and other food related business. This trend is likely to continue as traditional brick-and-mortar retailers dwindle in the wake of e-commerce. However, the SVN Resource Group concedes the shifting dynamics present repositioning opportunities for savvy investors and restaurateurs.

Top Tier, Middle Market

The SVN Restaurant Resource Group emphasizes assets valued between $500K- $5.0M. According to SVN Advisor, Jim Martin, “These tend to be fairly easy to finance with local and regional banks, i.e., the MB’s and Bridgeview Banks of the world.”

Martin explains the strategy is consistent with the mid-market world where SVN typically contends. “We rarely compete with the likes of CBRE or JLL, yet we’re able to leverage a national platform, the most sophisticated commercial real estate tools in the industry, and ultimately win the business.”

New Blood

Christian Peppler has joined the SVN Restaurant Resources Group and will provide advisory services for mixed-use property owners throughout the Greater Chicagoland Area. Christian brings six years of commercial real estate experience and has overseen $10M in real estate transactions.

About The SVN Restaurant Resource Group

The SVN Restaurant Resource Group provides first-in-class advisory to clients in the foodservice and hospitality industry. Landlords, restaurant and nightclub operators, bakeries, caterers, hotels, food processors and manufacturers rely on the experience, local market knowledge, industry relationships, and technology advantages possessed by this highly specialized team of commercial real estate professionals. SVN has over 200 offices throughout the US, Mexico and Canada.

To learn more, visit the SVN Restaurants website here.

[bctt tweet=”“We’re able to leverage a national platform, the most sophisticated commercial real estate tools in the industry, and ultimately win the business.””]

Game-Changing Trends in Retail Distribution

Posted on July 17, 2015 by SVN

Each year, at our Sperry Van Ness® (SVN) National Conference, I talk to our commercial real estate advisors and business owners about game-changing trends. Game-changers occur when people are doing things (working, playing, living) differently than they used to just a few years ago. This year, I compiled them under 4 categories: Communication, Design, Collaboration and Distribution.

Trends in Distribution

The following video features the third portion of my 2015 talk on trends. Watch the video and read the takeaways below.

Main Takeaways in Distribution Trends

Retail establishments will need:

1. “Omnichannel” sales, meaning in person, online and even retailer to retailer distribution.

2. Customized delivery options, including the ability to pay different prices for different rates of delivery (same day, next day, 2-days or more); and pick up in store.

3. Smart fulfillment centers that may even have robots performing most of the work, located near to large population areas.

Most people think of Amazon as a store, but it is truly a distributor of products and their innovations in this area are extraordinary. While it may be a long time before drones will have the flight clearance to deliver our packages from the nearest smart fulfillment center, Amazon is experimenting with actual stores, same day delivery in urban areas, Amazon Prime which rewards loyal customers; and even a new slow delivery option where they give you eBook credits. It will probably not be long before we can order a product via our phones and pick up in the store, and if we haven’t paid online, we can go to a retail location and a robot will bring us our product which we will pay for by a few taps of on our smartwatch.

At Sperry Van Ness International Corporation, we are watching these trends to see how they affect the commercial real estate industry. Our goal is to capitalize on these trends so that our advisors are using the most powerful tools to the benefit of their clients.

To view the full speech please visit our YouTube page.

Orange County, CA | 2015 Top #CRE Markets to Watch: Retail

Posted on July 8, 2015 by SVN

Sperry Van Ness International Corporation’s (SVNIC) 2015 Top Markets to Watch Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Retail Markets to Watch. Not the largest or the most actively contested markets, the 2015 Retail Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Top Retail Market to Watch: Orange County, CA

The retail vacancy rate in Orange County fell below 5% in 2014, down more than 200 basis points over the last two years. Rents have moved in kind, rising 8.1% over the year, according to Chandan Economics. Supply has been restrained but will spike in 2015 as large projects come online. The market is expected to absorb the new space easily, supported by the area’s strong underlying economic and consumer spending trends. In many areas of Orange County, retail sales are back to prerecession levels, at least when measured by sales tax receipts.

Supported by a median household annual income exceeding $75,000, developers are stepping up to provide opportunities for retailers to cash in. Institutional retail property owners are pouring money into remodeling and updating Orange County malls, including South Coast Plaza, which generated $1.6 billion in sales in 2014. The Brea Mall completed its major facelift in 2014, and others, including Main Place in Santa Ana and the Laguna Hills Mall, are soon to receive major remodels as well. In the small- and mid-cap segments of the market, grocery-anchored shopping centers in Orange County have seen an impressive run of 5 straight years of positive net absorption. Developers are also turning to downtown Anaheim and downtown Santa Ana for mixed-use infill opportunities.

To read more on Orange County and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason—we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors with more than 180 locations in 200 markets.

San Antonio, TX | 2015 Top #CRE Markets to Watch: Retail

Posted on June 24, 2015 by SVN

Top Retail Market to Watch: San Antonio, TX

Contrasting national trends, San Antonio’s retail inventory grew in leaps and bounds in 2014. Developers added roughly 2 million square feet of new retail space during the year, nearly doubling the tally of deliveries from the market low point in 2012. Despite the new supply, occupancy has edged higher. CoStar reported a 5.5% vacancy rate for the fourth quarter of 2014, below San Antonio’s long-term average. Asking rents were relatively flat over the year but are expected to ramp up. Investors in the market may find that cap rates still reflect the slower rate of income gains, affording an opportunity for investment at a discount to fundamentals.

The balance of San Antonio’s retail development in 2014 came from large chain stores like Walmart and Sam’s Club. Walmart made big moves with the opening of a new Supercenter, as well as four smaller locations. Texas-based supermarket chain H-E-B also experimented with new concepts in 2014, renovating its oldest operating location on Nogalitos Street into its first two-story market in Texas. H-E-B plans to expand its corporate headquarters in downtown San Antonio, and build an adjoining 12,000-square-foot market, the only grocery store in the urban core. Once-troubled retail corridors, like Austin Highway, are seeing new life thanks to complementary multifamily development in the area.

To read more on San Antonio and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

Orlando, FL | 2015 Top #CRE Markets to Watch: Retail

Posted on June 24, 2015 by SVN

Top Retail Market to Watch: Orlando, FL

Investors frustrated by rock-bottom yields in gateway markets may find the right balance of lower asset prices and improving market performance in Orlando. Investment activity has picked up, but the recovery in prices has lagged, reflecting a slow rebound in occupancy and rent growth. While retail rents were flat in 2014, CoStar projects that rent growth will accelerate past an annual rate of 5% by 2016.

Downtown Orlando is sometimes criticized for a lack of weekend activity, but plans are in the works to enliven the city center and introduce new live–work–play opportunities to this Central Florida market. Investors are adding more entertainment draws to the tenant mix. Orlando Fashion Square, sold in 2013 for $35 million, added a bowling alley last August and will become the home of Orlando’s first Element by Westin hotel. The Artegon Marketplace is adding a mix of specialty draws like International Hot Glass, a DIY glass-blowing studio and art gallery, and Gods & Monsters, a 19,000-square-foot comic book concept. A new mall is in the works, as DDR broke ground on the new Lee Vista Promenade in December, despite Target pulling out as one of its proposed anchor tenants.

To read more on Orlando and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

Northern Virginia | 2015 Top #CRE Markets to Watch: Retail

Posted on June 24, 2015 by SVN

Top Retail Market to Watch: Northern Virginia

The Northern Virginia retail market has long been dominated by traditional shopping malls, but today’s retail developers are working to recast the area in a more urban mold. Among the most notable projects, the Springfield Town Center, a wholesale redevelopment of the Springfield Mall, opened in late 2014 with more outdoor and community spaces, a movie theater, and play options for children. Development activity has not crimped fundamentals. Northern Virginia ended 2014 with a retail vacancy rate of 6% according to Chandan Economics, down 30 basis points from a year earlier.

Supporting the long-term outlook for the local retail scene, Tysons Corner is due to receive a boost with the long-awaited extension of the DC Metro’s Silver Line. Office leasing in the area is picking up, which will increase the number of riders through the Tysons Corner station. Several new mixed-use retail and apartment developments have broken ground since the Silver Line opened in July. By 2018, the Silver Line will be extended further to serve the Reston Town Center and link up with Dulles International Airport.

The possibility of federal belt-tightening has local economists in the Northern Virginia market warning of a possible medium-term contraction, but there is little evidence of a drop-off in activity thus far. Supermarkets and their developers seem to shrug off these worries as New York–based Wegmans and North Carolina–based Harris Teeter, now a subsidiary of Kroger, are among the retailers expanding into the area.

To read more on Northern Virginia and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

Nashville, TN | 2015 Top #CRE Markets to Watch: Retail

Posted on June 24, 2015 by SVN

Top Retail Market to Watch: Nashville, TN

Nashville’s road to recovery has been longer than for most other markets. In the immediate aftermath of the recession, vacancy rates trended above 10%, according to Chandan Economics, and have only recently narrowed the gap. Heading into 2015, the vacancy rate across all retail property subtypes was 6.6%, according to CoStar, approaching the long-term market average of 6.4%.

As property income trends have improved, new development is getting underway. Current projects include mixed-use development with street-level retail, such as developments by local grocer-cum-real estate developer H.G. Hill in Hillsboro Village and Sylvan Heights. Additionally, the opening of First Tennessee Park, the new 10,000-seat ballpark for the Triple-A affiliate Nashville Sounds, is expected to spur new retail investment into the Sulphur Dell neighborhood, just north of the Capitol. As competition for space in established retail hot spots like the Gulch, Green Hills, and Belle Meade intensifies, local retail investors are turning to the Main Street and Gallatin Avenue corridor of East Nashville for lower prices and a burgeoning local retailer scene that could support upside appreciation. Florida-based supermarket chain Publix has reportedly shown interest in a smaller urban concept near Music Row, satisfying growing demand for grocery store options from residents of newly built downtown submarket apartments and condos.

To read more on Nashville and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

Miami, FL | 2015 Top #CRE Markets to Watch: Retail

Posted on June 17, 2015 by SVN

Top Retail Market to Watch: Miami, FL

Miami’s retail sector has never been healthier. Across all subtypes, CoStar reports the market vacancy was just 3.6% in the fourth quarter of 2014. Malls and power centers circled out the year with sub-2% vacancy rates; neighborhood and community shopping centers, at a still-enviable 5.1%. Spurred by limited availability, rent growth in Miami has hit double digits, rising by 11.2% in 2014 according to Chandan Economics’ tracking of mortgage-financed properties.

Luxury brands from across the globe are clamoring for footholds in the rejuvenated Design District and some of Miami’s large-scale retail construction sites. The westerly suburb of Doral is also heating up, as IKEA opened its only Miami–Dade County location there in August 2014, and giant mixed-use projects Downtown Doral and Doral CityPlace are expected to deliver hundreds of thousands of square feet of retail in 2015. As Doral retail opportunities come online and centrally located mega-projects like Brickell CityCentre add plenty of supply, it remains to be seen how rapidly the pent-up demand for retail will absorb these new additions.

While the relative strength of the dollar compared to most foreign currencies could mean that international travel to Southern Florida will recede slightly, domestic tourism may well increase with cheap gas prices driving Americans to hit the road. For long-term investors, both are issues for the short-term and should not alter the long-term outlook for Miami’s retail sector.

To read more on Miami and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

Manhattan, NY | 2015 Top #CRE Markets to Watch: Retail

Posted on June 10, 2015 by SVN

Top Retail Market to Watch: Manhattan, NY

Retail is booming, as it always seems to be, in the major shopping districts of Manhattan. The Fifth Avenue corridor below Central Park has stolen Hong Kong’s Causeway Bay crown as the most expensive retail market, with rents for the top deals exceeding $3,000 per square foot. Even when incumbents leave the luxury corridor, their spaces are not vacant for long. Microsoft announced it would take over the space vacated by Fendi, which moved to a no-less-swanky Madison Avenue location in 2014. Microsoft’s new location will be its first flagship to compete with the ubiquitous Apple retail stores.

New York City neighborhoods are seeing an increase in demand for space driven by a strong local economy and large-scale infrastructure and development projects that will transform entire submarkets. In Lower Manhattan, several national tenants are actively in search of spaces near the World Trade Center as the full vision for the neighborhood reaches fruition. Saks Fifth Avenue announced that it would take 90,000 square feet in the adjacent Brookfield Place center as well as open a Saks Off 5th store in 1 Liberty Plaza, the first of its kind in Manhattan. Additionally, Neiman Marcus announced plans to open its first Manhattan location in 2018 at the Shops at Hudson Yards, currently under construction. Not every part of the borough can boast runaway success in retail leasing. While residential investors are betting on the opening of the Second Avenue Subway in East Harlem and the Upper East Side, retail leasing activity has not picked up significantly in anticipation of the new line.

To read more on Manhattan and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

Understanding the Retail Anchor

Posted on June 9, 2015 by SVN

If you attended this years ICSC RECon in Las Vegas then you know retail is on the tip of the tongue of every commercial real estate investor. With acquisitions high, it’s important to understand retail CRE concepts. One of the most important concepts in retail property is the anchor.

What is a Retail Anchor?

A retail anchor is a store or other tenant that drives traffic to a retail center or area.

While large shopping malls typically use department stores as anchors, most private commercial real estate investors buy smaller properties. These strip centers are usually anchored by a grocery store like Safeway, Kroger or Piggly Wiggly or by a drug store like a Walgreen’s, CVS or Rite-Aid. Anchored centers typically carry lower cap rates due to the fact that investors usually prefer them.

Many anchored centers are actually “shadow anchored.” This means that an anchor store is present, but is not a part of the center. A good example of this would be a strip center with a Target store. Since Target almost always owns their stores, the center is shadow anchored by the Target. You can buy the center, and it can benefit from the presence of the Target, but you won’t own the Target itself. If you are considering a shadow anchor center, make sure that you have a good understanding of where the shadow anchor actually is. I have seen brokers describe centers as “shadow anchored” when the anchor is located kitty-corner across a major intersection.

Anchored and shadow anchored centers are some of the best commercial real estate investments. They offer the stability of a large tenant combined with a diverse income stream. Many anchored centers also have a tenant mix which performs well in both up and down economies.

What do you think about anchored retail? Please share your thoughts below.

To read more on retail markets in the commercial real estate industry, download the 2015 Retail Market Update report here.

Las Vegas, NV | 2015 Top #CRE Markets to Watch: Retail

Posted on June 2, 2015 by SVN

Top Retail Market to Watch: Las Vegas, NV

Brick-and-mortar retailers across the country are struggling against competition from online commerce. In downtown Las Vegas, however, e-retailer Zappos, along with other tech firms, is creating jobs and helping to diversify the market away from its traditional gaming base. In 2013, the online shoe seller acquired the former City Hall building, transforming it into its corporate headquarters. The company’s chairman additionally purchased about 100 surrounding parcels and has invested nearly $350 million in The Downtown Project, backing everything from the development of an elementary school and a healthcare clinic to establishing a tech start-up incubator. While these are not retail investments, per se, they are essential elements of the complementary live–work–play environment that is proving ever more important for the success of retail spaces.

Across the Las Vegas market, CoStar reports an unenviable retail vacancy rate of 9.6% as of the fourth quarter of 2014. Malls boast much lower vacancy rates but are balanced against a 14.8% vacancy rate for neighborhood centers. Vacancy rates are projected to trend lower in 2015 and 2016, owing largely to limited new supply, but rent growth will remain subdued in the near term.

In the realm of retail spaces catering to tourists, the draw of Las Vegas remains on the Strip, and, in recent years, casino operators have been investing in retail and restaurant opportunities. New York, New York added several storefronts along the Strip near the Brooklyn Bridge replica, including the 12,000-square-foot Hershey’s Chocolate World flagship store. In 2014, the LINQ Hotel & Casino opened its 300,000-square-foot open-air retail center, anchored by the High Roller, a 550-foot observation wheel. Other retail additions at Treasure Island, Bally’s, and the new Tropicana are at various levels of completion. Investor interest in Sin City had slumped in the aftermath of the housing bust; however, led by the Blackstone acquisition of The Cosmopolitan hotel complex late last year, many investors now have Las Vegas back in their sights.

To read more on Las Vegas and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

Charlotte, NC | 2015 Top #CRE Markets to Watch: Retail

Posted on June 1, 2015 by SVN

Top Retail Market to Watch: Charlotte, NC

Charlotte is generally well-regarded for its healthy office market and, having recovered substantially from the financial crisis, is drawing retailers with an eye for its improving employment and consumer outlook. With falling retail vacancy rates and only modest levels of construction, market fundamentals are poised to strengthen through 2015 and 2016. Across all retail subtypes, Chandan Economics reports the market vacancy rate for mortgage-financed properties fell below 7% in the fourth quarter of 2014. As compared to a year earlier, the pace of rent growth nearly doubled during 2014.

A burgeoning supermarket war is being waged in the Charlotte region, as Florida-based Publix is rapidly snapping up market share in Harris Teeter’s backyard. Walmart locations are proliferating throughout the region, and Whole Foods announced in early 2015 that it will open its second Charlotte location in the First Ward. Restaurants are also looking toward Charlotte and its hungry workers for expansion. New York–based salad purveyor Chop’t chose the Charlotte neighborhood of Myers Park for its first location outside of New York or DC. Another newcomer to the region is personal shoppers at malls, which are now available at Simon’s SouthPark Mall for a sizeable fee. Investor appetite for the region’s retail is very strong, as most institutional investors have already become comfortable with Charlotte’s fundamentals through office assets. The largest retail transactions of 2014 were closed by Connecticut-based Starwood Capital and Los Angeles–based CIM Group, both of which also own substantial office towers in the CBD.

To read more on Charlotte and other top retail markets, download the full version of the 2015 Top Retail Markets to Watch report here.

It’s a different world out there.

#CRE Trends and Market Update 2015 | Retail

Posted on May 28, 2015 by SVN

Retail Market Outlook

Stronger Economy and Job Trends Drive Retail Outlook

Retail property investors have waited patiently for signs of momentum in the sector’s otherwise prodding recovery. Over the next year, many of those investors will see their patience rewarded. A stronger consumer and a healthy uptick in lease signings, a dearth of new supply, and a growing appreciation for shoppers’ changing tastes are poised to lift occupancy rates and rents for well-located, well-tenanted, and well-managed properties. Risks remain, most clearly from shoppers’ substitution into online commerce for an ever-widening range of quickly delivered products. In managing those risks, the shift to destination “shop and play” retail models — and the emergence of new models including urban outlet centers — are taking on new urgency as competition for consumer dollars intensifies.

Improving Fundamentals and Investment Opportunities

Vacancy rates at neighborhood and community shopping centers extended their slow decline, falling 20 basis points in 2014 to 10.5 % for mortgage-financed properties tracked by Chandan Economics. Data from the International Council of Shopping Centers (ICSC) and the National Council of Real Estate Investment Fiduciaries (NCREIF) show even stronger trends, with shopping center vacancy rates falling to 7.3% at the end of last year, the lowest level in more than six years, since the early days of the recession. Mall performance proved that traditional retail models are far from obsolete; vacancy rates fell to a 27-year low of 5.8%, while asking rents registered double-digit increases.

As compared to apartments and central business district office buildings, where values have surpassed their pre-crisis peaks, retail cap rate spreads remain elevated across a wide spectrum of neighborhood and community shopping centers. Investors in the small- and mid-cap segments of these retail markets are not yet faced with a shortfall of secondary market properties trading at discounts to fundamental value. Even as prices rise for stabilized assets, the investment opportunity set may grow over the next two years as billions of dollars of mortgages bundled into pre-crisis commercial mortgage-backed securities (CMBS) come due. Smaller retail properties are overrepresented in those maturities and will stretch the market’s refinancing capacity, favoring cash-rich investors with the capacity to recapitalize distressed borrowers.

Grocery-anchored centers and retail net lease properties with credit tenants and long remaining lease terms are proving more challenging spaces for investors in search of discounts. The bond-like characteristics of the latter allowed them to emerge as investor favorites in the aftermath of the recession. Buyers now cite a dearth of product in the market as a source of frustration and upward pressure on prices. Even as investors have migrated to riskier products, bank branches, the stronger national pharmacy chains, and quick-service fast-food establishments have seen cap rate spreads fall substantially lower than historic norms for net lease assets. Investors should be cautious in gauging the possibility of disruptions in safe haven tenant classes. In the grocery space, online retailers that have failed thus far to penetrate the market are watching Amazon Fresh for insights into shoppers’ willingness to try new things. Needless to say, traditional grocery owners and their landlords are watching closely as well.

Retail Market Statistics in 2015

Back to Work and Back to the Mall

At the heart of the improving retail picture, the labor market has improved substantially over the last year. Employers added more than 3 million jobs in 2014, the strongest performance since 1999. The unemployment rate, admittedly an imperfect measure of labor market health, fell to 5.6% at the end of the year, the lowest level since mid-2008. Even though early 2015 job numbers have been softer and labor participation remains depressed, the overall trends reflect an important dynamic in the job market. The rate at which businesses are hiring is trending toward normal levels; more important, the rate at which workers are voluntarily quitting their jobs, an indicator of their prospects in the job market, is also on the upswing.

Even as the headline job numbers improve, growth in wages remains sluggish. Among the countervailing forces putting money back in consumers’ pocketbooks, spending on debt service fell below 10% of disposable personal income during the fourth quarter of 2014. More recently, Americans have been spending less on their gas and oil heating bills, a net positive for the economy even though energy markets like Houston and Oklahoma City have suffered. In terms of headwinds, a larger share of renter households’ income is going to housing costs as apartment rent growth continues to outpace wages. Households are spending more on consumer goods in any case, driving year-over-year increases in personal consumption expenditures on the order of 4% in late 2014 and early 2015.

Brick-and-mortar retailers will have to work harder to capture their share of new spending, whether through enhancements to the tangible in-store experience or the development of truly effective omnichannel strategies. Online retail spending growth has increasingly outpaced traditional retail channels, growing year-over-year by nearly 15% in the fourth quarter of 2014. In contrast, retail spending excluding e-commerce increased by only 1.2%.

Construction Remains in Check

Investment in new retail space remains subdued as compared to pre-crisis peaks. Retail property development spending increased to $18.6 billion in 2014, up to 15% from a year earlier, but barely more than half its 2007 level. Factoring also for the rising cost of construction, the tally of projects underway across neighborhood and community shipping centers, big box retailers, and shopping malls is still early in its recovery.

New project announcements will be increasingly frequent in 2015, with an emphasis on growing and under-amenitized residential neighborhoods and malls that can effectively meet the “shop and play” paradigm. Difficulties in obtaining financing for smaller projects will persist as constraints over this cycle, particularly as heightened regulatory capital requirements at banks come into effect.

Rent Growth Improves Slowly

Measured across all property subtypes, retail rents are rising slowly but consistently. Average asking rents increased by 2.8% in 2014 according to Chandan Economics’ tracking of mortgage-financed properties, improving on the prior year’s 2 % increase. The aggregate numbers mask wide differences across geography and subtype. Dominant superregional malls and urban street-front retail have seen relatively larger increases; setting the bar, Fifth Avenue below Central Park in Manhattan is now, at roughly $3,400 per square foot, the most expensive retail corridor in the world.

Measures from ICSC and NCREIF show stronger trends than themortgage data. Shopping center rents increased by 6.5% in 2014, the best result since 2008. For malls, base rents increased by 17.2%, the fastest pace in the 14 years of available history. Mall net operating income (NOI) registered an exceptional year-over-year increase of 21.3%.

Cap Rates Have Room to Decline

Well below its long-term average of 7.7%, the national average cap rate across all retail property types declined by less than 10 basis points during 2014, to just under 6.4%. Values increased even though cap rates were relatively flat, as improving rents and occupancy rates more than offset higher expenses. As compared to its long-term average of 320 basis points, cap rate spreads over ten-year Treasury yields held onto an additional cushion of 60 basis points. The largest regional malls commanded cap rates below 5 %, as did high street retail in gateway cities. Neighborhood and community shopping center cap rates trended between 7.0% 7.5% during 2014.

While the impact of e-commerce on retailers has varied dramatically across product types, there is no segment of the market that is fully immune to the fundamental changes in the way Americans shop. Properties that are perceived as more resilient to substitution out of brick-and-mortar, including the most urban locations and grocery- and pharmacy-anchored properties, commanded a larger price premium and lower cap rates in 2014. That divergence in retail property values may narrow in 2015 as a better job market and rising discretionary spending lift some weaker segments of the market.

Markets to Watch

Not the largest or the most actively contested markets, the 2015 Retail Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.

Download the full report here.

Market Cap Rates

Across all retail subtypes, the national average cap rate on mortgage-financed property sales was 6.4% in 2014, well below the 20-year average of 7.7%. Cap rates reflect historically low Treasury yields and spreads that remain elevated as compared to long-term norms. Across markets, cap rates for anchored shopping centers ranged from 8.1% in Detroit to 6% in the Bay Area. In gateway markets, cap rates for high street retail reflect aggressive bidding by domestic and foreign buyers. Driven by property trades along their major tourist corridors, San Francisco and Manhattan boasted high street retail cap rates of 4% and 3.9%, respectively, on par with the best-positioned apartment and office buildings.

It’s a different world out there.

It requires a different kind of commercial real estate firm working on your behalf in order to be successful. The Lipsey Company has ranked the Sperry Van Ness® organization as one of the most recognized commercial real estate brands in the US for a reason — we know how to deliver a certainty of execution for our clients. Sperry Van Ness International Corporation is one of the largest commercial real estate franchisors, with more than 190 locations in 500+ markets.