Market Data

Market Trends

Outlets Going Strong

North American outlet centers still outperform traditional malls in sales power, according to International Council of Shopping Centers president and CEO Michael P. Kercheval, at the Value Retail News Fall outlet convention. Sales at the 205 North American outlet centers average around $532 psf, whereas traditional mall sales average about $480 psf, he says. Developers are adding 11 new outlets centers totaling 3.8 msf in 2014, several of them opening in Canada. In addition, 11 centers are expanding, adding an average of more than 76,000 sf of new space to meet tenant demand. Fourteen additional expansions are in the works for next year and beyond, adding another 1.7 msf to the outlet category. Retailers no longer worry about cannibalizing sales at their full-price stores and have jumped into the outlet tenant roster with both feet. More than 368 outlet chains operate almost 13,000 stores and plan to open another 1,843 stores next year.

Source: Value Retail News

“It is widely believed that the commercial real estate industry can handle the anticipated increases in interest rates without serious disruption to its recovery and sales activity.”

—PwC Real Estate Investor Survey, 3Q14

Briefly Noted

Hospitality — The 2015 forecast for both boutique and convention hotels is strong, according to STR. The boutique niche will see a 0.5 percent decrease in occupancy but 6.3 percent growth in average daily rates and a 5.8 percent increase in revenue per available room. Convention hotels also face a 0.2 percent occupancy increase, 5.8 percent ADR boost, and a 6 percent RevPAR increase.

Industrial — After the top three ports of New York/New Jersey, Long Beach, Calif., and Los Angeles, the next three top-volume seaports are Savannah, Ga., Baltimore, and Tacoma, Wash., according to JLL. Savannah’s increased volume has sparked big-box industrial construction in nearby Atlanta, while Baltimore and Tacoma are seeing new construction of 1.4 msf and 3.5 msf respectively.

Multifamily — The real question for multifamily investors next year is “Are we overbuilding?” says Cassidy & Turley chief economist Kevin Thorpe. Given the increase in new development nationwide, “the underlying question of fundamentals — vacancy levels and rents — is much more likely to impact the sale pricing of apartment projects in 2015 than the potential impact of minor hikes in interest rates,” he says.

Office — Investors in secondary markets seek stabilized office assets instead of those near lease rollovers, according to the 3Q14 PwC Real Estate Investor Survey. An analysis shows 19 of 44 markets registering an above-average percentage of acquisitions per inventory according to the survey, including Denver, Phoenix, San Diego, Minneapolis, Austin, Texas, Nashville, Tenn., San Jose, Calif., and Orlando and Jacksonville, Fla.

Retail — Dollar General and Dollar Tree both continue to pursue Family Dollar, however single-tenant net-lease investors remain more interested in the number of new stores opening than the brand takeover war. With 1,000 new stores opening this year, new-construction dollar stores commanded a 50 basis point premium in 3Q14, and comprised 45 percent of the entire sector, according to the Boulder Group.

Ulta Plans Expansion

On top of a strong 2Q14 earnings report, Ulta Beauty Supply announced plans to open 100 stores annually for the next five years. The beauty supply retailer is a favorite of Wall Street analysts because of its one-stop shopping approach. Ulta sells both high-end and discount beauty and fragrance products, as well as hair salon services — a “major disruptor” in the beauty supply field, according to the Wall Street Journal’s MarketWatch. Ulta’s net income rose 35 percent in 2Q14, and it raised its earnings growth for 2014 to 20 percent. The company’s 715 stores operate in 47 states in “convenient, high-traffic locations such as power centers. Our typical store is approximately 10,000 sf, including approximately 950 sf dedicated to our full-service salon,” according to the Ulta web site.

Canada 1H14 Update

More than C$13 billion in Canadian commercial real estate traded hands in the first six months of 2014, according to Avison Young, a 10 percent drop from 1H2013. The decrease in activity is not due to lack of cash or investors, but lack of available assets, says Bill Argeropoulos, Avison’s vice president and director of research for Canada. “Some owners are opting to hold on to their properties given the difficulty of replacing them with similar or better-quality assets,” he says. In addition, “Lower yields have led other investors to pursue alternative growth strategies — such as new developments, which offer higher yields, or redevelopment of existing assets to unlock value — while others have sought investments abroad. All of these factors have tempered domestic investment activity.” Canadian institutional investors bought $5.4 billion of U.S. properties in 1H14, primarily in Manhattan and Boston.