Retail Investment Transaction Volume on the Rise

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More retail investment sales are closing this year, but there is a deep  divide between higher-end retail properties and the rest of the retail market, according to my guests on the “Commercial Real Estate Show.”

Sales of retail properties increased 24 percent in the first quarter of this year compared to the first quarter of 2010, according to CoStar Group Inc. Pricing for retail properties was up about 1.6 percent, making retail the only property type to post a gain that quarter, CoStar reported.

“Retail has woken up from its slumber,” said Chris Macke, senior real estate strategist at CoStar Group Inc. “Retail is looking good.”

Bifurcation

However, show guests cautioned that there is a major separation between luxury retailers and more moderately-priced ones, and that the most attractive shopping centers are thriving while the more average ones are often still recovering.

“There is a significant difference both in property-level valuation but also performance between the A assets and the rest of the pack,” said Jonathan Miniman, senior vice president and senior analyst at ING Clarion Real Estate Investment Management.

Scott Fisher, a partner at Arnall Golden Gregory, says he is seeing severe bifurcation in the market. “The good in-fill locations, the high-density locations are very desirable,” Fisher said. “You go two blocks away to something that is a little more marginal, and there is just not the same interest in it.”

Changing Demographics

Toro reports that retail developers face the task of following major demographic trends. They must meet the need for shopping opportunities in the urban, walkable communities that Generation Y demands.

“There is going to be more demand for retailers and retail developers going forward to deploy large-format retail in very dense urban environments,” said Mark Toro, partner at North American Properties.

Based on the interest in a city block we just put on the market in Midtown Atlanta, retailers and developers are flocking to dense urban environments. The 2.5 acre site has been approved for up to 1.4 million sq ft of retail, office and multi-family space.

Financing

“We’ve seen the volume of retail sales come back and holding hand in hand with that has been the return of capital on the debt side for the markets,” said Tim Perry, partner and vice president of acquisitions at North American Properties.

“Over the last year, financing is coming back into the game but we still seen a lot of cash offers,” said Kyle Stonis, partner and senior vice president of the National Retail Group at Bull Realty, Inc. In the current and future market, Stonis predicts more recapitalization transactions closing with investors participating in joint ventures with existing sponsors.

The show provides a good overall update on the retail investment market and offered keen insights on the future of the market. The full show is available for download here.

Michael Bull, CCIM
Host, Commercial Real Estate Show
Founder, Bull Realty, Inc
RadioShow@BullRealty.com