The 10 Best Markets For Retail Investment

April 3, 2017 in Latest News

consumer spendingOne fact that usually gets lost in the recent flow of news about store closures is that none of it is unusual. Retail concepts come and go all the time. Economic cycles and changes in consumer tastes all but guarantee that a retail concept that reigns supreme at one point in its lifecycle could very well file for bankruptcy or liquidate several decades later.

Still, the retail real estate sector accounted for $76 billion in investments at the end of 2016, according to Anjee Solanki, the U.S. national director of retail services at real estate services firm Colliers International. Major gateway cities like Atlanta, Los Angeles and New York often attract investor interest first, but experts point out that secondary markets offer just as many prospects for investors looking to put their money to work.

For investors, the economic outlook for 2017 looks mixed: varying estimates have the GDP growing between 2.1 percent and 2.5 percent in 2017, and wages are also expected to increase. The labor market is expected to tighten, as the economy is expected to create 2 million new positions in 2017, down slightly from the 2.2 million new jobs filled in 2016, according to the “2017 U.S. Retail Investment Forecast,” from Marcus & Millichap, a commercial real estate brokerage firm based in Calabasas, Calif.

Marcus & Millichap estimates that store openings among value- and service-oriented retailers could result in about 81 million sq. ft. of net absorption. Developers are expected to complete about 49 million sq. ft. of retail projects this year. That is a significant amount of development, but much lower than the estimated 225 million sq. ft. of new construction that the industry used to complete each year through 2007, says Bill Rose, a first vice president and national director of Marcus & Millichap’s retail group. Restrained new construction means the industry could see its vacancy rate drop to 5.1 percent.

Where does that leave retail real estate investors in 2017? Where should they look for acquisitions to get the best return on their investments?

10. Nashville, Tenn.

With thriving healthcare and technology sectors, the capital of Tennessee is attracting infrastructure projects, new construction and young people. Vacancies for 2017 are expected to average around 4.0 percent—among the lowest in the country, according to Marcus & Millichap. Rents are beginning to increase to rates that are comparable with those quoted in gateway cities.

9. Phoenix

This city of 1.5 million weathered the Great Recession and employment is now up 2.0 percent. The insurance and technology sectors represent the areas of greatest expansion, and they are attracting well-paid educated professionals. A clear seller’s market, retail fundamentals here strengthened in 2016, as the median asset price spiked 20 percent and cap rates slipped to 6.5 percent, according to Colliers.

8. Salt Lake City

This city offers prospective residents biking, fishing, hiking and skiing options. Marcus & Millichap’s Rose says investors are attracted to the market because it offers an appealing outdoor lifestyle experience.

7. San Diego

With perpetually sunny skies, strong land use controls and plenty of tourist attractions, it is no wonder that San Diego is considered part of the string of cities known as the “smile” of the United States. Investors can expect to pay a low going-in cap rate when buying in any one these markets, but with population and job growth in place, they also get good prospects for future rent growth.

6. Atlanta

This city lost one of the most invigorating comeback Super Bowls in recent memory, but it is still winning in the key areas of rising employment (up 2.5 percent) and asking retail rents (up 2.5 percent). New construction is expected to reach around 3.2 million sq. ft. this year.

5. Houston

Houston is among the cities with the highest number of expected completions, at about 3.6 million sq. ft. Gains in payrolls and employment endowed households with the kind of disposable income that supported retail sales growth.

4. Dallas

This gateway city is part of what the market calls the Triangle of Texas, along with Austin and Houston, and is a reliable locus of growth and strong investment. Employment prospects in the area are promising, with net migration is set to reach about 88,000 people. As for retail, asking rents are expected to rise to $15.47 per sq. ft. this year.

3. Denver

Colorado’s premiere city might seem isolated, but it offers an appealing outdoor lifestyle for young adults looking for a place to settle. Employment growth is a buoyant 2.8 percent. The retail vacancy rate is trending down and rents are also up 3.1 percent, according to Marcus & Millichap.

2. Los Angeles

Retail deliveries in 2017 are on course to double 2016 levels, but that is not a red flag for this market, according to Marcus & Millichap. Employment is expected to increase by 1.1 percent, and retail rents are expected to rise by about 2.0 percent. Retail properties are maintaining their appeal across various price points and locations around the city, keeping first-year returns within a range of mid- to high-4.0 percent, Marcus & Millichap reports.

1. New York City

Don’t let the recent headlines about landlords making rent concessions fool you. New York City is still a dominant gateway city, with strong hiring trends in healthcare, education and hospitality sectors, according to Marcus & Millichap. At the time of the report, about 60,000 new jobs were expected to hit the Big Apple market, and retail rents were expected to increase by 5.4 percent.

 

Source:  NREI

The Top 10 Best Markets For Retail Investment

October 19, 2015 in Latest News

Top 10A look at the current Commercial Property Price Indices (CPPI), as well as the outsize growth of rental rates in certain markets, shows that the retail sector continues to be an attractive place for real estate investors and developers to park their money.

The annual “Emerging Trends in Real Estate” survey by consulting firm PwC and the Urban Land Institute (ULI) gets more specific about which markets might be the safest bets for such investment, based on buy/hold/sell recommendations from hundreds of commercial real estate industry professionals.

The survey included responses from 1,465 participants who work for real estate ownership and development companies (34.3 percent), real estate services firms (26.5 percent), institutional investment and management firms (11.5 percent), lending firms (7.4 percent), real estate brokerages (6.5 percent) and other real estate-related outfits.

Here are their thoughts on the most favorable markets for retail.

1.  San Jose, CA
Forty-four percent of respondents recommended buying retail assets in San Jose, while another 50 percent advised current owners to hold their assets.

2.  Orange County, CA
Orange County also got a 44 percent “buy” recommendation, with 48 percent of respondents recommending a “hold.”

3.  Dallas/Fort Worth, TX
Forty-seven percent of respondents voted on “buy” for Dallas/Fort Worth, while 31 percent advised investors to “hold.” According to the survey’s authors “Concerns about potential overbuilding are on the market’s mind, but the sentiment is that new construction is still justified at this time.

4.  Nashville, TN
Nashville got a 47 percent “buy” vote and a 41 percent “hold” vote.

5.  Boston, MA
More than half the survey respondents (52 percent) believe that retail properties in Boston are a “buy” right now, while another 24 percent recommended holding on to retail assets.

6.  Los Angeles, CA
Fifty-four percent of respondents believe Los Angeles is a good place to buy retail properties right now, while another 33 percent advised existing owners to “hold.” Many industry insiders believe that the multifamily and retail sectors are the most under-supplied in Los Angeles today, PwC/ULI researchers note.

7.  Portland, OR
Portland received a 59 percent recommendation to “buy,” and a 32 percent recommendation to “hold.”

8.  Austin, TX
Sixty percent of respondents view Austin as a place to buy retail right now, and another 36 percent would hold onto existing assets. “Austin may well be a market where the growth in population leads to the need for new retail centers,” the survey’s authors write.

9. Miami, FL
The retail market in Miami is red-hot right now, with 65 percent of investors believing the city is a good place for retail investors and 35 percent recommending a “hold” for existing properties. In fact, retail was judged to be the strongest of all commercial property sectors in the city today, “benefiting from good population and income growth, as well as the strong tourism component in the market.”

10. Brooklyn, NY
Brooklyn is having a moment right now, and its retail market is no exception. Sixty-eight percent of respondents recommended buying retail properties in the borough, and another 21 percent said they would “hold.”

 

Source:  NREI

Miami #1 Among 8 Best Markets For Retail Investment

February 9, 2015 in Latest News

miamiWhen it comes to retail real estate, everyone knows there is no safer bet than New York’s Fifth Avenue. That’s why many investors are willing to pay astronomical prices to own a piece of it.

But what if you are looking for healthy yields, in addition to a feeling of confidence your shiny new asset will not end up in default a few years from now?

National Real Estate Investor put together a list of cities that currently offer the best opportunities for outsized returns without outsized risks, based on interviews with capital markets specialists from Cushman & Wakefield and Colliers International and research from the CoStar Group and Real Capital Analytics (RCA).

The ranking was based on a combination of factors, including recent population growth, the volume of new retail space under construction, retailers’ interest in opening stores in the area and current cap rates. Take a look at their choices and let us know if you agree.

1. Miami

“Miami effectively has two regional malls being built in the downtown area at the same time and people are still bullish about investing their money in it,” says Mark Gilbert, executive vice president in the capital markets group at Cushman & Wakefield. Miami-Dade County has approximately 1.45 million sq. ft. of retail space under construction, 35.9 percent of it already spoken for, according to CoStar data from year-end 2014. The retail vacancy rate in the market averages about 3.5 percent, with average quoted rents at $32.11 per sq. ft. But the market’s health is reflected in the pricing as well. Last year, the volume of retail investment sales in Miami totaled almost $1.59 billion, reflecting an increase of 74 percent from the year before, reports RCA. Sales of strip centers in the city closed at an average price of $228 per sq. ft. and an average cap rate of 6.7 percent, compared to the U.S. average of $155 per sq. ft. and 7.3 percent.

2. Dallas

Gilbert and Drew Fleming, senior director with Cushman & Wakefield’s capital markets group, note that some investors have been scared off from Dallas recently because of the drop in oil prices, but they believe that is likely to be a short-lived blip in the city’s fortunes and may, in fact, create better pricing opportunities. “Worldwide, retailers are focused on expansion in the U.S., and [Texas cities] are the cities they are most interested in,” says Gilbert. Dallas continues to rank among the fastest-growing cities in the country, with Dallas County posting growth of 2.83 percent between 2010 and 2013, according to the U.S. Census Bureau. The Dallas/Fort Worth area currently has 3.65 million sq. ft. of retail projects in the works, but 92.1 percent of that space has been pre-leased, reports CoStar. At year-end, the market had a vacancy rate of 6.7 percent, with average quoted rents of $14.11 per sq. ft. In 2014, investors paid an average price of $166 per sq. ft. and an average cap rate of 7.7 percent for strip centers in Dallas, according to RCA statistics.

3. Houston

Houston is the other Texas city that retailers are “most interested in. The city ended 2014 with a vacancy rate more than 100 basis points below Dallas’, at 5.6 percent, and average quoted rents of $15.17 per sq. ft., according to CoStar. There are approximately 2.35 million sq. ft. of new retail going up in Houston, 87 percent of it pre-leased, the research firm estimates. Retail investment sales in the city last year totaled roughly $1.36 billion, a drop of 14 percent from 2013. The average price on strip center acquisitions was $173 per sq. ft., with an average cap rate of 7.6 percent.

4. Las Vegas

As a rule of thumb, the cities offering the highest yields on retail investment in this market cycle will be those that were badly hit by the housing bust, notes Ryan McCullough, senior real estate economist with CoStar. (The reasoning being that they are still experiencing outsized population growth, but retail developers have been scared off from putting up new retail projects, leading to demand outstripping supply). Las Vegas has been a poster child for this type of dynamic. The city added 200,000 new residents between 2011 and 2014, but the volume of new retail construction is relatively modest, at 556,790 sq. ft. (53.6 percent of it pre-leased). The vacancy rate in the city is still relatively high, at 9.3 percent, but rents are healthy at $15.59 per sq. ft. Strip centers in Sin City sell at an average of $150 per sq. ft., and a cap rate of 7.3 percent. Last year, investors weren’t too eager to bet on Las Vegas—the volume of retail investment sales in the market went down 21 percent, to $1.07 billion.

5. Atlanta

“We are very bullish on Atlanta and we have the data to back that up,” says Cushman & Wakefield’s Fleming. “Unemployment has dropped dramatically and we are seeing a trend of companies that are located outside the region relocating to the Southeast.” Last year, Forbes ranked Atlanta as the 12th fastest-growing city in the nation, with population growth of 1.27 percent and job growth of 7.07 percent in 2013. The city currently has only 385,058 sq. ft. of retail under construction, with pre-leasing commitments for at least 85.9 percent of the space, according to CoStar. Atlanta’s vacancy rate averages 8.4 percent, while its quoted rents are at $12.47 per sq. ft. Strip centers in the city are relatively affordable, at an average price of $150 per sq. ft. and a cap rate of 6.6 percent. But Atlanta is also attracting plenty of interest—last year, total investment sales volume in its retail real estate went up 27 percent, to $1.9 billion.

6. Charlotte

Charlotte is becoming more attractive to both investors and retailers because of its healthy population growth and sizeable college cohort—the latest “must have” for retail companies, according to Cushman & Wakefield’s Gilbert. Like Atlanta, it’s made Forbes fastest-growing list, with population growth of 2.3 percent in 2013. The city is home to the University of North Carolina in Charlotte, Charlotte School of Law, Johnson & Wales University and Queens University of Charlotte, among other schools. At year-end, Charlotte’s retail vacancy rate stood at 6.5 percent, reports CoStar, and its quoted rents averaged $13.20 per sq. ft. Developers are currently working on 578,801 sq. ft. of new retail construction in the city, 87.8 percent of which has been pre-leased. Retail investment in the city is going up—last year, sales volume shot up 97 percent, to a little more than $1 billion. But at an average price of $138 per sq. ft. and a cap rate of 7.1 percent, it still looks like a bargain.

7. Nashville

“Tennessee is very hot right now. Anything that’s traded in Nashville is something that everybody has to have,” says Paul Barile, director of capital markets with Colliers International. Nashville may be best known as the seat of country music, but it’s also home to a number of healthcare companies and has proven attractive to start-ups, according to CNN Money. It also leads the nation in advanced manufacturing, reports the Brookings Institute. At year-end, the retail vacancy rate in the city averaged 6.4 percent, with quoted rents of $14.38 per sq. ft., reports CoStar. In spite of being one of the fastest-growing cities in the nation, Nashville has only 354,106 sq. ft. of new retail in the pipeline, 87.9 percent of it pre-leased. And like Charlotte, it’s still affordable, with prices for strip centers averaging $155 per sq. ft. and an average cap rate of 7.2 percent.

8. Raleigh/Durham

Part of North Carolina’s Research Triangle, both Raleigh and Durham rank among the nation’s fastest growing metro areas. In the fourth quarter, the cities posted a combined vacancy rate of 5.1 percent, the second lowest on our list, and quoted rents of $14.58 per sq. ft. There is currently 766,962 sq. ft. of new retail construction in the works for the area, 87.3 percent of which has been pre-leased, reports CoStar. In 2014, investment sales volume in the Raleigh/Durham market was moderate, at $626 million, but the figure represented a year-over-year increase of 137 percent, according to RCA. Investors were willing to pay a premium for strip centers in the city, with average pricing at $202 per sq. ft., but the cap rate has stayed at a rather conservative 7.5 percent.

 

Source:  NREI