Certain U.S. Retail Markets Shine Brighter Than Others In Slow-but-Steady Recovery
CoStar Midyear Analysis: Investors Cherry-Pick Deals In Markets With Strongest
Fundamentals and Growth Prospects Retail Square Footage per Capita Decreases for
First Time in Many Decades.
The "happy rainbow" of year-over-over demand growth
for U.S. retail
space continued to spread across the country at midyear, with shopping
center landlords just now beginning to capitalize on accelerating population,
employment and housing trends, almost no new retail property construction, and
consumers returning to shop in stores once more.
Overall demand for shopping space is gathering momentum as shown by the three-quarter trailing average for net absorption, which rose to its highest levels since the Great Recession during the second quarter of this year. Even if consumer spending dips as rising interest rates and taxes exert pressure on personal income, store closings have slowed and retailers are both more confident and more productive and efficient in how they use their physical space.
"We are seeing the amount of retail square footage per capita decrease for the first time in many decades," said Ryan McCullough, who co-presented the Midyear 2013 Retail Review and Outlook with Suzanne Mulvee, director of U.S. research, retail for Property and Portfolio Research (PPR), CoStar's analytics and economic forecasting company. "This opens the door to better [store] productivity, and ultimately rent gains. The light but positive demand we're seeing is producing a healthier retail market."
In what McCullough terms the "boring but important" recovery in fundamentals, vacancies in U.S. retail properties continue to slowly come down, falling below 7% at midyear, 3 1/2 years into the recovery. Meanwhile absorption - while positive - remains light relative to history.
Those improving metrics have put retail pricing on the upswing once again, with the retail index of the CoStar Commercial Repeat Sale Indices (CCRSI) gaining 16% over the last 12 months ending in the second quarter, the strongest performance among the four major property types.
Despite the improvement, some markets are further along in their recovery than others, and the CoStar economists believe the U.S. retail market recovery as a whole still has at least a couple of years of upside before reaching full bloom.
To illustrate that the recovering retail property market is progressing more rapidly in certain U.S. markets than in others, Mulvee and McCullough delved into findings for a select group of large markets in the midyear market presentation -- Atlanta, Washington, D.C., Chicago, Denver, Phoenix, the San Francisco Bay Area and coastal Southern California.
Among that group, the clear "rock star" of the retail real estate world was Denver, with strong demand momentum and outsized vacancy compression that has fallen below the U.S. average and below its own previous low in pre-recession 2007.
Led by the technology and energy sectors, the Mile High City's net absorption , while still below levels seen in the market heyday of 2006-2008, comes closest to being what's considered "normal" among the major markets. Retailers such as Wal-Mart, H&M and Cabela’s have been particularly active in Denver, leasing significant amounts of space.
"We’re seeing sales volume near peak levels and pricing that’s close to peak level. Investors and retailers are taking note and it’s kind of a new dawn for Denver," McCullough said.
All leading indicators suggest that the Denver's retail recovery will continue led by employment growth. In addition, Mulvee noted that $6 billion is being spent on expanding Denver's Fast Track transit system, which in turn is creating intersections and neighborhoods that retailers will find attractive.
Phoenix is another market where the retail recovery is recovery at a quicker pace than the U.S. average. Decimated by the recession which drove up store vacancies well over 12%, Phoenix is finally seeing a pickup in net absorption and with the supply pipeline virtually empty.
"Lenders (for retail property development) are still hung over from the 2006-2009 period when more than 25 million square feet of retail space came onto the market, and developers remain skittish," Mulvee said. "There’s simply no appetite on the part of debt capital to put out construction loans, and as a result, we’re forecasting that the recovery will last at least for the next couple of years."
In additional to a recovery in home prices and population growth at three times the national average, Phoenix is seeing the growth of market clusters, including a nascent technology employment node.
Scottsdale accounts for 40% of Phoenix’s transaction activity, including all its major 2013 deals, such as the sale of the 147,084-square-foot Grayhawk Plaza by the Pederson Group for $37 million, or $251 per square foot, at a 7.9% capitalization rate.
Another top performing U.S. retail market is the San Francisco Bay area, where vacancies remain super tight in spite of lower net absorption, since not much space is available.
"This is a market starting to see pockets of strong rent growth emerging," Mulvee said. "The wealth effect is very much in play, and it's not as much about growth in the number of people as much as growth in income."
Although the overall economic recovery has lagged in LA and Orange counties, the retail market, fueled by recovering home prices, is looking solid. Stringent land use control has kept supply down, and coastal Southern California has a fairly healthy per capita retail space ratio.
|
Overall demand for shopping space is gathering momentum as shown by the three-quarter trailing average for net absorption, which rose to its highest levels since the Great Recession during the second quarter of this year. Even if consumer spending dips as rising interest rates and taxes exert pressure on personal income, store closings have slowed and retailers are both more confident and more productive and efficient in how they use their physical space.
"We are seeing the amount of retail square footage per capita decrease for the first time in many decades," said Ryan McCullough, who co-presented the Midyear 2013 Retail Review and Outlook with Suzanne Mulvee, director of U.S. research, retail for Property and Portfolio Research (PPR), CoStar's analytics and economic forecasting company. "This opens the door to better [store] productivity, and ultimately rent gains. The light but positive demand we're seeing is producing a healthier retail market."
In what McCullough terms the "boring but important" recovery in fundamentals, vacancies in U.S. retail properties continue to slowly come down, falling below 7% at midyear, 3 1/2 years into the recovery. Meanwhile absorption - while positive - remains light relative to history.
Those improving metrics have put retail pricing on the upswing once again, with the retail index of the CoStar Commercial Repeat Sale Indices (CCRSI) gaining 16% over the last 12 months ending in the second quarter, the strongest performance among the four major property types.
Despite the improvement, some markets are further along in their recovery than others, and the CoStar economists believe the U.S. retail market recovery as a whole still has at least a couple of years of upside before reaching full bloom.
To illustrate that the recovering retail property market is progressing more rapidly in certain U.S. markets than in others, Mulvee and McCullough delved into findings for a select group of large markets in the midyear market presentation -- Atlanta, Washington, D.C., Chicago, Denver, Phoenix, the San Francisco Bay Area and coastal Southern California.
Among that group, the clear "rock star" of the retail real estate world was Denver, with strong demand momentum and outsized vacancy compression that has fallen below the U.S. average and below its own previous low in pre-recession 2007.
Led by the technology and energy sectors, the Mile High City's net absorption , while still below levels seen in the market heyday of 2006-2008, comes closest to being what's considered "normal" among the major markets. Retailers such as Wal-Mart, H&M and Cabela’s have been particularly active in Denver, leasing significant amounts of space.
"We’re seeing sales volume near peak levels and pricing that’s close to peak level. Investors and retailers are taking note and it’s kind of a new dawn for Denver," McCullough said.
All leading indicators suggest that the Denver's retail recovery will continue led by employment growth. In addition, Mulvee noted that $6 billion is being spent on expanding Denver's Fast Track transit system, which in turn is creating intersections and neighborhoods that retailers will find attractive.
Phoenix is another market where the retail recovery is recovery at a quicker pace than the U.S. average. Decimated by the recession which drove up store vacancies well over 12%, Phoenix is finally seeing a pickup in net absorption and with the supply pipeline virtually empty.
"Lenders (for retail property development) are still hung over from the 2006-2009 period when more than 25 million square feet of retail space came onto the market, and developers remain skittish," Mulvee said. "There’s simply no appetite on the part of debt capital to put out construction loans, and as a result, we’re forecasting that the recovery will last at least for the next couple of years."
In additional to a recovery in home prices and population growth at three times the national average, Phoenix is seeing the growth of market clusters, including a nascent technology employment node.
Scottsdale accounts for 40% of Phoenix’s transaction activity, including all its major 2013 deals, such as the sale of the 147,084-square-foot Grayhawk Plaza by the Pederson Group for $37 million, or $251 per square foot, at a 7.9% capitalization rate.
Another top performing U.S. retail market is the San Francisco Bay area, where vacancies remain super tight in spite of lower net absorption, since not much space is available.
"This is a market starting to see pockets of strong rent growth emerging," Mulvee said. "The wealth effect is very much in play, and it's not as much about growth in the number of people as much as growth in income."
Although the overall economic recovery has lagged in LA and Orange counties, the retail market, fueled by recovering home prices, is looking solid. Stringent land use control has kept supply down, and coastal Southern California has a fairly healthy per capita retail space ratio.
Source: Costar Headlines, Randyl Drummer 8/14/13
DISCLAIMER: This blog has been curated from an
alternate source and is designed for informational purposes to highlight the
commercial real estate market. It solely represents the opinion of the specific
blogger and does not necessarily represent the opinion of Pacific Coast
Commercial. www.PacificCoastCommercial.com
Keywords: San
Diego Commercial Real Estate For Sale, Commercial Property In San Diego,
Commercial Real Estate In San Diego, San Diego Investment Real Estate,
Commercial Property Management In San Diego, San Diego Commercial Property
Management, Commercial Property Management San Diego, Managed Commercial
Property San Diego, Commercial Property For Sale San Diego, San Diego
Commercial Real Estate Leasing
Comments
Post a Comment