June 22, 2011
Numbers from the Spring 2011 U.S. National Retail Report reflect across-the-board retail expansion. From restaurants to grocery chains, this newfound optimism bodes well for retail real estate.
The U.S. National Retail Report examines a breadth of topics surrounding current retail trends. Produced by real estate advisory firms ChainLinks and Terranomics, the report includes rental rates, retailer demand and shopping centre vacancy, as well as overall economic indicators such as income growth and unemployment. Here we’ll take a whirlwind tour of some of the most important findings. Make sure to read the full report for more in-depth analysis.
2010 saw a recovery in leasing activity from its 2009 lows, thanks to opportunistic retailers faced with low rents. These retailers also helped to stabilise rents in 2010, which had dropped substantially leading into last year. Retail real estate investment activity also made a comeback in 2010, thanks to products at both ends of the spectrum: high-performing shopping centres for investors seeking steady income streams, as well as distressed assets and REOs for opportunists.
Retail vacancies also seem to have stabilised in most markets, but the trend has varied according to location and shopping centre class. 2010 was a year of uneven recovery in terms of vacancies, with urban properties strongly outperforming suburban markets. Primary properties—those in strong urban marketplaces or vibrant suburban intersections—have been posting lower vacancy levels uniformly, across most of the tracked markets. Secondary shopping centre properties in strong markets, situated close to but not quite in the thick of thriving urban locations, have also been stabilising, but not necessarily across the board. Analysts do not expect recovery until 2012 for those secondary properties in weaker markets, where vacancy is still above 12%. The vacancy rates for third-tier centres in smaller or rural markets are still experiencing some downward pressure.
The report also ranked US cities in terms of their retail health. The winner is Washington, D.C., with a drastic increase in retail demand over the past couple of years, very low shopping centre vacancy levels as well as the lowest unemployment rate of any major market city. Also in the top ten for retail health are San Francisco, New York City, Boston, San Diego, San Jose, Baltimore, Philadelphia, Seattle and Pittsburgh.
A recent IPDA article echoed many of the U.S. National Retail Report’s findings, with a spotlight on food retailers. From traditional supermarkets and drug chains to convenience stores, food retailers are poised for expansion. The biggest growth is into urban centres, with major chains opening smaller formats to suit these city environments. These include Walmart, which plans to open up to 40 Walmart Express stores this year and “hundreds” in the coming years. Target is set to pilot City Target, its smaller urban format, in Chicago, Los Angeles and San Francisco in 2012. Aldi has also been opening smaller stores – at an even faster rate than both Target and Walmart – setting up shop in urban areas throughout the United States.
Both publications paint a very positive picture of the retail spectrum – for consumers, landlords, investors, bankers and retailers – describing retail as generally being in recovery mode since early 2010.