Good retail vibrations felt at ICSC New York
At ICSC’s recent show in New York, moods appeared brighter than they did at the May show in Las Vegas, as most top developers anticipated a gift from the Fed.
On Dec. 13, Christmas came early for a retail real estate industry that’s held back on new construction. The Federal Reserve announced it would hold interest rates at their current level and promised three rate cuts for 2024.
On the ICSC exhibit floor at the Javits Center last week, JLL”s president of retail real estate Naveen Jaggi said he expected interest rates to stay firm in 2024 and looked forward to rise in retail space availability.
“Medical uses that have moved into retail centers have had a lot to do with drop in availability. Hospitals take up a lot of space,” he said. “But the high price of construction will be offset by lower interest rates. I think we’ll see the vacancy rate move up to between 5 and 7 percent.”
Jaggi’s JLL colleague, Kristin Mueller, president of retail property development, agreed that the low retail construction rate is not a significant industry problem.
“For 15 years we’ve been talking about being overbuilt. Now we’re not,” she said.
DLC Management CEO Adam Ifshin, who last month spent $100 million to buy four open-air centers and plans to buy more, agrees that retail expansion will continue unabated in 2024.
“It should be a good year if the Fed doesn’t put rates back up,” he said. “The good news is that shipping costs are at their lowest in a decade, so material costs have gone down considerably. As for labor costs and availability, there’s been little change. There’s a big problem with availability of skilled labor. We actually need more immigration to help fix it.”
CEO Curt Frost of WMG — another active developer of open-air centers with nearly 400 properties in 35 states — was highly optimistic about the near future of retail real estate.
“We’re looking at the next 12 to 18 months as a great opportunity. There are lots of strong and durable brands looking to move into new locations, but the big ask for developers is, ‘When will you deliver?’” Frost said. “We develop at a large scale, and that reduces risk for a new tenant. The retail side of our business has been huge.”
Consumers, too, appear eager to play a role in keeping retail vibrant, according to CBRE’s head of retail thought leadership.
“They have remained remarkably resilient despite a national consumer debt total of $70 trillion,” Isner observed. “Credit limits have gone up 20%, but cardholders have stayed well below their limits. Most consumers are not desperate and they’re still spending.”
Broker Brian Katz, meanwhile, whose Katz & Associates represents East Coast and Midwestern tenants and landlords, remarked that his business has remained strong since the pandemic.
“There is a large group of retail brands that have continued actively expanding,” Katz said. “I tell people there’s no such thing as no space. There’s always a way.”