Is Retail Rounding the Corner?
With retail sales ticking slightly upward this fall, available lease space should drop next year for the first time in six years, according to CB Richard Ellis. Available space in neighborhood and community shopping centers should decline from 13.2 percent to 12.8 percent in 2011 and 12.1 percent in 2012. A couple of trends are working in retail’s favor currently. The pop-up store is moving out of major markets such as New York and Los Angeles and going mainstream, at least for the holiday season. Toys “R” Us opened 600 pop-up stores this fall, many in mall spaces formerly occupied by KB Toys. Toys “R” Us also owns FAO Schwarz, which is opening 10 pop-up stores in higher-end mall locations. In addition, other retailers benefiting from the recession are making more permanent expansion plans. Building on a renewed interest in sewing, Jo-Ann Stores, which owns more than 750 U.S. locations, is adding 50 new stores, and regionally, Fresh & Easy grocery stores has opened 163 stores in the last three years in California, Arizona, and Nevada, with seven more opening by year-end. Goodwill retail stores have been active in the Southeast, adding 10 Georgia locations since 2007, with plans to open five a year through 2014. Goodwill Industries has bought and leased former Circuit City properties in a number of markets.
U.S. Retail Forecast
Absorption: 16.4 million sf
Completions: 35 million sf, lowest level in 30 years
Source: Marcus & Millichap
Hospitality — Consumer spending on U.S. lodging is up 10 percent over last year and foreign travel to the U.S. increased 15 percent YOY, pushing room demand up 8.7 percent over last year, according to Maximus Advisors.
Industrial — With warehouse vacancies only falling to 11.6 percent in 2011, rents will not see any recovery next year, according to Maximus Advisors’ fall 2010 update. Rents should increase 1.4 percent in 2012, followed by 2.5 percent annual growth in 2013 and 2014.
Multifamily — The national multifamily vacancy rate should fall to 5.5 percent by year-end 2011, says CB Richard Ellis. Of the 60 markets tracked, 58 had YOY declines in 2Q10, with 28 reporting vacancy drops greater than 200 basis points.
Office — With ready access to cash, public and private real estate investment trusts have been active buyers of medical office buildings, says the 3Q10 Korpacz Real Estate Investor Survey, with midyear sales volume topping $1.7 billion. The average MOB sales price is $224 psf, 23.8 percent higher than the average for traditional office space.
Retail — Amazon.com, Aeropostale, Urban Outfitters, CVS, and Walmart are the five most fiscally healthy retailers, according to Consensus Advisors, a retail investment firm that looked at sales growth, assets, pricing power, and balance sheets for 160 retailers for the past five years. The benchmarking survey offers an alternative to same-store sales, a short-term metric that can be misleading.
“As clearer signs of stability and recovery slowly emerge and investors gain more confidence in the depth of the investment market, buyer and lender interest will likely spread to more noncore, value-added opportunities and secondary markets.”
– Korpacz Real Estate Investor Survey, 3Q10
Lease Terms 2010
Average office lease: 56.2 months
Average industrial lease: 44.7 months
Source: Grubb & Ellis
Canada’s Lowest Office Vacancies, 3Q10
Waterloo Region, Ontario: 4.4%
Halifax, Nova Scotia: 8.7%
Source: CB Richard Ellis