Report: Retail still lags during boom times for real estate
At 4.2%, the GDP growth rate in the second quarter is the highest it’s been over the past nine years of economic expansion, and investors will be plowing money into commercial real estate, according to Cushman & Wakefield’s current U.S. Macro Forecast.
“Nearly every possible metric suggests the U.S. economy – at least as it relates to the property markets – is in excellent shape,” said Kevin Thorpe, the company’s global chief economist.
But the investor playbook will become “more nuanced,” said the report, meaning investor dollars will flow more freely into office and industrial real estate versus retail.
While Class A retail properties will continue to attract investment dollars, B and C properties will scrape for cash infusions aimed at redevelopment. Excluding urban and mall retail space, Cushman forecasts that net absorption at shopping centers will taper off in coming years, with the vacancy rate rising from the present 6.6% to 6.8% in 2020.
Noting that GDP growth will hit consumers with higher inflation, Cushman’s head of research Revathi Greenwood still sees a healthy outlook for commercial real estate.
“In general, the outlook signals that commercial real estate values will continue to rise. There’s momentum behind the current expansion, and it would take a major shock to derail it,” Greenwood said.
Mall rents continued to fall in second quarter
The great American mall shakeout continued in the second quarter, with Class A malls in stronger markets flourishing and lesser properties struggling.
Mall tenants are the beneficiaries. Rents at malls fell 4.6% from Q1 and now stand 7.1% lower than they were one year ago, according to JLL’s Q2 Retail Outlook. Due to an abundance of anchor store closings, year-to-date net absorption surpassed 2 million sq. ft.
Power centers were the only other retail properties to post a negative net absorption figure-that of 900,000 sq. ft., and after-effect of the Toys “R” Us bankruptcy. While gross absorption at power centers was comparable with previous quarters, move-outs totaled 7.6 million sq. ft.
Net absorption is arrived at by subtracting total retail space leased in a given period by space vacated. A negative rate indicates a renter’s market and, usually, lower rents. Gross absorption is simply the total square footage leased during a period.
Mall move-outs in the second quarter totaled 7.8 million sq. ft. — the lion’s share of them, 4.8 million sq. ft., in low- to mid-rated malls. Move-outs at malls with 5-star ratings from CoStar registered move-outs of less than 100,000 sq. ft.
As always in real estate, the situation is all about location. Malls “with strong locations were able to nab high-productivity tenants like Whole Foods, Wegmans, and Nordstrom,” said the JLL report. “Those in fairly good locations were leased by tenants like Dick’s, Belk, and At Home. Those with only an average location had a harder time finding a replacement tenant, and when they did it was usually a lower-performing non-retail tenant.”
Philadelphia performed particularly strong during the quarter, due in large part to strong demand at King of Prussia and Horsham/Willow Grove.
Retail rents over all categories of retail rose a healthy 5.4% during the quarter. Posting year-over increases were stand-alone retail at 8.1%, shopping centers were at 3.5%, and power centers at 2.7%.
Macerich and Simon team up on L.A. luxury outlet center
Two of the biggest names in malls are getting together on a Los Angeles outlet center that they hope will attract “the most affluent” locals and tourists.
Macerich and Simon will partner 50-50 on Los Angeles Premium Outlets in Carson, which lies north of Long Beach and east of Torrance. The location was attractive, said the partners, because of its proximity to both the I-5 corridor and the I-10 freeway.
First to rise on the site will be a 400,000-sq.-ft. center slated to open in fall 2021. A 166,000-sq.-ft. second phase is in the blueprints, though no timing was announced for the planned expansion. Neither were any tenant-signings announced by either company.
In a joint statement, Macerich president Ed Coppola and Simon CEO David Simon called the outlet center a one-of-a-kind project on great real estate in one of the nation’s most attractive markets.
Carson mayor Albert Robles said he was thrilled to have “two of the country’s biggest and best names in retail real estate” favor his town with their joint venture.
“This…will add value to our community for many years to come, attracting locals and tourists from all over the world,” Robles said.
Los Angeles Premium Outlets will do business just a short drive from City of Champions Stadium, future home of the Rams, Chargers, and diverse entertainment options.