Market Data

Market Trends(22)

Tomorrow’s Store

What’s the future of your retail center? Well, to meet the demands of tomorrow’s tenants, think about subdividing those big box spaces, losing the parking lot, and adding a few bike racks.

Last year total retail sales grew about 7 percent, according to the U.S. Commerce Department. But online shopping grew almost 15 percent, toting up $165.4 billion in sales. E-commerce is expected to reach nearly $270 billion by 2015, according to e-Marketer.

To compete with e-retail’s convenience and selection, brick-and-mortar retail “must deliver where the online store cannot,” says Jennifer Bassett of Interbrand, a consulting company that ranks the best retail brands. “This not only means more exciting window displays, but an atmosphere fully infused with a brand’s values, from graphic design, interactive elements, unique architecture, and exciting, relevant merchandising.”

Interbrand foresees “microformat” stores with 40 percent less square footage and large windows for tempting displays, clustered in pedestrian friendly “commerce centers,” connected by sidewalks and bike paths. Grocery stores will mimic farmers markets, drugstores will have medical and dental services, and most retailers will offer in-store experiences that consumers can’t get online. For example, at Lutxottica, an eyewear store in Melbourne, Australia, machines simulate snow and water glare for consumers. “In the next few years, expect to see more brands innovate their brick-and-mortar stores, through multisensory experiences more akin to theme parks,” Bassett adds.

1Q11 Multifamily Stats

Effective rents: 4.65%, largest YOY gain since 1996

National occupancy: 93.6%, up 125 bp YOY

2011 rent growth forecast: 5.5%

Source: Multifamily Executive

Taxes,Taxes,Taxes

A location’s effective tax rate is a huge factor in corporate site selection, and a recent Ernst & Young study ranks Maine first of the 50 states, having the lowest ETR of 3 percent, while New Mexico and the District of Columbia are tied for the highest rate at 16.6 percent. The study also analyzed the tax burden based on the type of facility, which indicates further disparities.

“If [developers] want competitive [federal] money … we’ve set sustainability as a criterion for all of our funds. And that’s really going to begin to change the game on a broad scale.”

— Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development

Auction Results

A survey of real estate auctioneers by PropertyAuction.com indicated that auctions are an option for all types of properties and all types of sellers. Land, industrial, and multifamily are the most common types of commercial assets auctioned, usually through on-site/open-outcry auctions. Sealed bids account for only 2 percent of auctions these days, while 21 percent of auctions are carried out online.

Briefly Noted

Hospitality — After a two-year decline, hotel profits rose 9.8 percent in 2010, according to PKF Hospitality Research. Full-service segments achieved the greatest gains at 14.4 percent, while limited service had the smallest at 0.5 percent. PKF estimates total hotel revenues to grow by 6.8 percent this year.

Industrial — Self-storage investment activity will increase as banks sell off REO properties in California, Florida, Arizona, and Nevada, according to Marcus & Millichap. REITs and other institutional investors will look to the Northeast for prime core assets priced $10 million and above, while SBA loans will help finance purchases below $5 million.

Multifamily — Declining homeownership rates boosted 1Q11 apartment fundamentals nationwide, according to Reis.com. More than 44,000 units were absorbed in 1Q11, and every major metro saw revenue-per-unit increases, as much as 8.8 percent in top market Greenville, S.C.

Office — Institutional investors, including pension funds, sovereign-wealth companies, and insurance companies added almost $1.4 billion in office assets to their portfolios in 1Q11, according to CoStar, signaling a shift from selling to buying. REITs added $1.1 billion in office holdings during the same period.

Retail — Store closing announcements fell 36 percent YOY in 1Q11, while the amount of square footage closed increased 31 percent, according to Jones Lang LaSalle. A number of retailers are downsizing, shuttering larger stores and opening smaller, more efficient locations.