The Discussion: Navigating the Dynamics of America’s Retail Real Estate Landscape
Note: While this article provides insights into the national retail property landscape, it’s crucial to recognize that performance metrics can diverge significantly at the local level, as seen in markets like Miami.
In the fast-paced world of commercial real estate, staying ahead of trends and understanding market dynamics is key to success. In a recent episode of “America’s Commercial Real Estate Show,” the show host delved into the complexities of the retail investment market with economist Barbara Denham from REIS, now a part of Moody’s Analytics. Their conversation provided valuable insights into the performance and future trajectory of retail properties across the United States.
The discussion kicked off with an analysis of retail performance in 2017. Despite prevalent media narratives depicting a bleak outlook for retail, Denham’s data painted a more nuanced picture. Contrary to popular belief, there was positive net absorption in neighborhood and community shopping centers throughout the year. Denham highlighted that the vacancy rate remained steady at 10%, with some fluctuation but overall stability. This stability was attributed to a balancing act between modest net absorption and construction activity.
Rental rates for retail properties were another focal point of the conversation. Denham noted that while there were small increases in rental rates overall, the market exhibited significant regional variation. Prime retail locations in cities like San Francisco commanded higher rents, while secondary markets saw more modest rates, sometimes below $10 per square foot. Denham emphasized that markets with strong employment and tourism growth, such as Seattle and Miami, experienced robust rental rate growth, while others faced declines.
Looking ahead, the conversation turned to the anticipated performance of brick-and-mortar retail in the coming year. The recent Tax Cuts and Jobs Act raised expectations for increased consumer spending due to lower taxes and improved employment prospects. However, Denham cautioned that the benefits of the tax cut might not directly translate into retail spending, as the majority of the tax relief skewed towards the top income bracket. Additionally, the retail landscape continues to grapple with store closures from major retailers like Kmart and Walgreens, which could temper overall market optimism.
Despite these challenges, Denham highlighted areas of opportunity within the retail sector. Non-traditional retailers, including gyms, charter schools, and medical centers, are increasingly occupying retail spaces, diversifying the tenant mix. Furthermore, the growth of entertainment and restaurant sectors remains strong, indicating shifting consumer preferences towards experiences rather than traditional retail shopping.
The conversation also touched upon the evolving role of online retailers in the brick-and-mortar space. Speculation about Amazon’s potential acquisition of Target sparked debate about the impact on both consumers and landlords. While there are concerns about increased competition, there is also recognition of potential efficiencies in inventory management and consumer benefits.
In conclusion, the discussion underscored the complexity and resilience of America’s retail real estate market. Despite ongoing challenges, there are pockets of growth and opportunities for savvy investors and landlords. By staying informed and adaptable, stakeholders can navigate the evolving retail landscape and capitalize on emerging trends.
As the conversation wrapped up, it was evident that while the retail sector may face headwinds, it also presents opportunities for innovation and reinvention. With the right strategies and insights, stakeholders can position themselves for success in this dynamic and ever-changing market.