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Retail Asset Transactions Saw Growth in 2014

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Retail Asset Transactions Saw Growth in 2014
February 23 | 2015

The Growth of Retail Assets in 2014

Sales of retail assets had a record-breaking year in 2014 with $82.6 billion in total, according to a recent from Real Capital Analytics.  This is over $1 billion more than the previous record set before the recession in 2007, when there was $81.4 billion in sales. In addition to beating out the earlier record, 2014 retail sales also showed that real estate investment activity improved in the post-recession.  Real Capital said 66.3 percent of all sales volume involved the sale of individual assets. 

One of the most popular retail assets in demand were street​ locations in urban areas, especially in Manhattan, New York City. 

"Transactions involving urban/high street​ locations stand out among the retail subtypes," Real Capital Analytics stated. "These assets saw volume of $13.1 billion with growth of 60 percent from a year earlier. This volume is slightly skewed due to a few $200 million plus deals in Manhattan in 2014, but excluding these, this segment still saw 45 percent growth from 2013."

Analysts also expect metro areas that likely have high-end malls to see solid performance levels, CoStar reported. Last year, luxury malls had a great year. However, mall operators should note that consumers are likely to choose only certain malls, which could make real estate investment decisions more difficult. 

"In another bit of a surprise, malls have performed stronger than the overall retail market, with very-high-end malls attaining the best sales per square foot and seeing sales productivity rise by 26 percent over last three years," the CoStar report said.  "The recovery among malls remains highly selective, with shoppers flocking to the strongest performers and shunning others."

 

Strip Centers, Outlet Malls Expected to See Higher Demand

In addition to urban/high street​ locations, strip centers also experienced a surge in investment activity as sales volume for strip centers jumped 35 percent to $37.9 billion, according to Real Capital Economics.

 

Outlet centers are increasingly seen as a desirable place for tenants, as high-end mall owners predict this segment will expand this year, Investor's Business Daily reported.  With the rise in demand for outlet centers, the industry is benefiting from rapid growth and construction. 

"It appears that the environment for outlet centers remains strong, or at least the enthusiasm on the part of developers and owners remains," Ryan Severino, senior economist for commercial real estate tracker Reis, said in an email comment to IBD.  "Outlet centers are a much more prominent part of the retail landscape than they were just 10 or 15 years ago."

Some retailers like Nordstrom predict store openings will rise in 2015.  As merchants expect to fill up more retail space, developers will likely have to increase construction of outlet centers, malls and other shopping areas in the face of tight inventory.  The rise in demand for retail space could lower vacancy rates even further. 

 

Lower Vacancy Rates Forecast for 2015, 2016

Analysts expect vacancy rates for retail to decrease 0.3 percent in 2015, according to the National Association of Realtors.  The NAR expects growing employment rates and the improving economy to boost the need for retail space.  The association said vacancy rates would likely reach 9.5 percent in the first quarter of 2016, down from 9.7 percent in the most recent data. 

NAR expects retail vacancy rates to be the lowest in coastal areas of the country, including San Francisco; Orange County, California; and Long Island, New York.  San Francisco has a current vacancy rate of 3 percent. 

As a result of tight inventory and higher retailer demand, NAR anticipates rents to increase 2.5 percent in 2015. Increases of 3.1 percent are forecast for the following year. 

 

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