Retail Overstock: A Regional Roundup

A variety of CCIMs provided commentary on their local markets for the May/June 2010 cover story, “Retail Returns to the Ring.” The following roundup of regional retail markets in the U.S. gives voice to the valuable insights that could not be included in the cover story.


Robin S. Eschliman, CCIM
Lincoln, Nebraska

In Lincoln, a city of a quarter of a million population, our unemployment is low compared to the rest of the country — only 4 percent. However, we are not seeing a lot of retail activity. What we are seeing is mild interest from locally owned businesses and franchises, most recently a large number of low-rent-paying boot camps and exercise-related uses. Lenders are showing extreme reluctance to finance restaurants, and while there have been a handful of in-line strip center sandwich shops that have opened, only one new fast-food drive-through chain has opened in many months. Vacant big-box spaces are not particularly under scrutiny by big-box retailers; the only interest appears to be from colleges and churches and one or two locally owned hardware stores. We have one lifestyle mall in an affluent area that is enjoying 100 percent occupancy, but our enclosed regional mall has suffered some vacancies in recent months.

Andy R. Fishler, CCIM

Well-positioned retail properties along major retail corridors are still trading at increasing cap rates. The majority are being bought by users or investors/developers that have a tenant in their back pockets. Retail will remain very slow through the next six months, but I believe it will show some signs of life for the 2010 holiday season.

Retail leasing deals that are getting done are primarily grocers and discount retailers. New(er) tenants to the market also are capitalizing on the depressed economy and desperate landlords as a way to enter the market and/or position themselves in a strong retail location with below-market rents.

We are advising our clients to cut deals to keep the spaces occupied and the lights on. Consumer expenditures will come back, rents will turn around, and values will climb again, but for the near future it’s all about keeping tenants in business.

Wilhelm O. Kreuzer, CCIM

The tenants that are active right now are fast-casual restaurants. A lot of retailer tenants are looking for rent relief; some are justified and others are not. The serious tenants are providing sales data backing up their need for relief. Depending on the situation, a slight reduction in rent in return for an additional lease term with rent bumps helps preserve asset value.

Tim Strange, CCIM, SIOR
Oklahoma City

Primarily we are seeing assets that have debt in place or are easily underwritten trade in our market. The current state of the financial markets is such that it is difficult to secure new financing on any type of retail investment properties. We have seen a couple of triple-net, single-tenant retail deals sell over the past two months. It appears national buyers and REITs are seeking triple-net deals once again.

Retail has the most negative outlook of all property types currently. Vacancy is stabilizing but remains at high levels while rates have seen declines. Current retail market conditions coupled with the lack of available credit will continue to impact retail sales during the first half of 2010; however, we may start to see improvement during the last half of the year as market conditions improve.


Waterbury, Connecticut

Shopping centers with cap rates over 10 percent are moving. … We tell landlords to maintain their properties, fix the parking lot potholes, make the center look as if business were really good. Help the struggling tenants that have a real chance of survival when the market finally turns.


Brian R. Bell, CCIM
Fort Worth, Texas

The retail sectors seem to be focused on management and leasing. Sales seem nonexistent. Several properties will be foreclosed but the landlords that are not upside down are not motivated to take a big hit on their returns.

A six-month forecast for retail will be focused more on leasing. This should be flat unless the franchise market comes out to put in more stores. It seems that the service industry and food stores are top prospects. There is little confidence from the banking industry that will support any retailer. A national credit tenant will get what it needs, but a local or regional one will have a hard time getting financing to open up new space. What needs to be on any balance sheet is a lot of cash for the past year and coming six months.

Brian Patton, CCIM

[Retail] lease rates have basically been cut 40 percent to 50 percent in our area. Most banks are opting to hold properties and lease them up instead of selling mostly vacant retail centers. Non-bank landlords are unable to compete for tenants in the usual $20 psf range, so their vacancy rates are not improving. Many owners are trying to get tenants in at $10 psf to $12 psf for the first year and then ratchet up rates quicker than the usual 3 percent escalations to help preserve value.

When retail centers are placed on the market, there are quite a few buyers looking to purchase in the $100 psf range for first-generation retail centers. However, most banks are in at $200 or more psf … so this makes it hard for them to lose 50 percent of their value on the property. The appetite for these centers remains strong, but investors are using $12 psf in their pro formas with 20 percent vacancy/credit losses.

Our six-month outlook forecasts that these trends will continue with commercial foreclosures trickling into the market. There really seems to be more cash chasing deals than there are deals, right now. Within the next 12 months, I believe that prices for small centers (20,000 sf) will remain stable at $100 psf and larger centers will trade for even lower prices.

Craig Thomas, CCIM
Jacksonville, Florida

Throughout the Southeast there has been a flight to quality for retail assets. Those investors who have taken their money off of the sidelines in order to deploy it in the current market have been pursuing higher-quality, lower price-point opportunities in order to place capital. Of course, all of the investors in the market are looking for discounted assets whether they be single-tenant net-leased or multitenant properties. However, there is still a significant ask/bid differential that exists in the market. High-quality STNL product, such as long-term pharmacies, has seen the least amount of cap rate decompression. However, the lack of acceptable financing in the eyes of many investors coupled with a pervasive sentiment of fear, has led to price softening and protracted marketing/closing periods regardless of product type. Pricing is continuing to stabilize and transaction velocity is trending upward albeit at a very gradual rate.

Many investors have chosen to take a vulture perspective on performing assets (expecting A properties at C prices), which only has exacerbated the pricing disconnect and therefore has prevented deal consummation on many viable transactions. Solid values exist across the market, with many grocery-anchored shopping centers offered at cap rates starting in the 9 percent range. With asset prices and the cost of debt at low levels, buyers will seek to secure properties on favorable terms ahead of the increase in interest rates that accompanies an economic recovery.

Clayton Watson, CCIM
Memphis, Tennessee

Palmer Brothers is an old (since 1912) Memphis family-owned firm. Our activities are primarily third-party retail sales, leasing, and management. A few of our mature (seven years or more occupancy) tenants are struggling with decreased sales volumes. We have, for specific tenants, modified existing lease agreements, temporarily accepting lower monthly payments to keep tenants in place and properties occupied. The tenants who receive this assistance must agree to abandon future lease renewals. To summarize: 80 percent of something is better than 100 percent of nothing.


Nicholas L. Miner, CCIM

Well-located class A properties traded lately. The other end of the spectrum, the value-add, also is starting to gain traction. Most of the buyers of distressed retail assets have been local owners and operators or close to our market, which is a 45-minute flight away from Los Angeles. Sellers have been larger banks.


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