Chicago Despite lingering economic stress that continues to curb consumer spending and affect the retail sector, recent evidence within the investment sales community indicates the retail real estate market has hit bottom and is showing increasing signs of recovery in 2010, according to the Jones Lang LaSalle 2010 Spring State of the Retail Market report.
The number of significant retail bankruptcies that grew to 13 in 2009 has slowed in the new year, and occupancy costs have dropped with market rents stabilizing at 25% to 50% below the peak in 2006. In the company’s Mid-Year State of the Retail Market report, it found that retail cap rates have fallen slightly, and will continue to experience downward momentum in the next 18-36 months as credit markets thaw, retail sales improve, vacancy rates decline and rents slowly increase.
During the past two years, retail property transaction volume has fallen more than 80%, with just 239 sales of multi-tenant shopping centers in excess of 80,000 sq. ft. of leasing transactions completed in 2009. A mere $7.2 billion in strip-center and $4.3 billion in mall and other (including urban retail, mixed-use properties, single tenant, etc.) investment sales were completed in 2009. The 2009 sales figures represent a decline of 32% and 57%, respectively, compared with year-end 2008.
“The lull of retail sector transactions in 2009 allowed both buyers and sellers the chance to regroup, survey the landscape, and prepare for future acquisition and disposition activity,” said Kris Cooper, managing director of Jones Lang LaSalle’s retail investment sales business. “New retail buyers are entering the market now including private investors and financial institutions. They’re seeking core at 7.5 to 8.25 cap rates on well capitalized assets and non-core at 9% to 10% or higher.”
Cooper also added that some opportunistic buyers are relieving troubled owners with a quick close to take the asset off their books, but that’s in exchange for purchasing the asset at 10% to 12%or higher.
“Meanwhile, attractive core retail properties are actually generating better pricing due to the availability of cheaper debt and lack of core product,” Cooper said.