If Black Friday and Cyber Monday 2010 numbers were any indication, retail may well be prepping for some measurable bounce in 2011.
But the road to recovery isn’t going to be without frustrations, according to Chicago-based Jones Lang LaSalle’s North America Retail Outlook report, released in November.
The inaugural report examined retail real estate fundamentals such as vacancy levels, rental rates and investment sales volumes -- and drew the conclusion that 2011 would see a “slow and arduous retail sector recovery.”
The report listed the following retail outlook highlights: National retail vacancy levels stand at a healthy 7.3%, with open-air shopping centers at 10.8% vacant and general retail at 5.1% vacant; investment sales volume for the first half of 2010 is 43% higher than the market trough in the first half of 2009; and rents are still declining with a year-over-year drop of 4.3%, averaging $15.18 in the third quarter.
“Although consumer confidence remains tepid at best, the industry is starting to make a gradual incline toward recovery,” said Greg Maloney, CEO and president, Atlanta-based Jones Lang LaSalle Retail. “Development is at an absolute standstill and this helps aid in the recovery process. We expect 2011 to be better than the last few years but nowhere near the peak of 2006.”
Plugging empty space with creative tenants is a 2009-2010 strategy that is projected to continue in 2011. Landlords have welcomed retail alternatives -- think bingo halls, thrift stores, churches, medical outlets and community colleges -- to their properties, and temp stores are the new black in shopping malls.
JLL’s report cited Gap, Target and Gucci pop-up stores as creative ways to introduce new lines, boost sales and generate buzz. Pop-up restaurants are another new and continuing trend, and temporary seasonal stores are on the rise. National retailers opening temporary, seasonal stores include Toys “R” Us, Build-a-Bear, Chico’s and Game Stop (MovieStop). Jones Lang LaSalle predicts that a small percentage of national temporary stores will become permanent tenants.
The big boys are driving innovation as well. National retailers such as Sears, Meijer and Wal-Mart are testing drive-through lanes aimed at convenience, and Target, CVS and Wal-Mart are beefing up their grocery sections. Wal-Mart is testing smaller concept stores within urban markets and convenience stores are amping up fresh food offerings.
Locals and regionals are poised for more growth in 2011. “Local and regional retailers are growing at a faster clip due to the recession,” said John Bemis, director of retail leasing and development for Jones Lang LaSalle. “Many former business executives that have lost their jobs are channeling their entrepreneurial spirit into new retail concepts. Landlords encourage incubator tenants that have necessary preconditions such as a unique concept filling a void in the marketplace, availability of personal savings and a target market that corresponds with the centers existing demographic.”
On the investment sales front, JLL reported that sales of significant retail properties increased more than 43% to $6.1 billion during the first half of 2010, and through August 2010, sales had increased to $10.5 billion. According to the report, a continued theme across buyer groups for the retail property market is frustration at the lack of product, which pushes sales volumes downward. Banks, however, would rather hold the properties than sell them at discounted prices.
“Banks have learned from previous recessions that the market does come back and they are not willing to drastically reduce pricing,” said Kris Cooper, managing director, Jones Lang LaSalle. “After conducting fire sales during the last downturn, they saw investors make huge profits not long after the recession ended. They won’t make that mistake again.”
The expectation for 2011 is one of continued recovery, though not as painfully slow as 2010. Jones Lang LaSalle expects that retail capital markets in 2011 will be extremely busy as substantially more retail product enters the sale market, which will be a combination of distressed and core as pent-up demand takes over globally. “Retailers will continue to grow at a slow pace but will focus more on optimizing their current portfolios to maximize savings. Landlords will continue to reinvent themselves to remain relevant to shoppers and will be happier in 2011 as rents begin to increase ever so slightly,” according to the report.