Four Forces That Will Propel Retail Investment Sales in 2014
The recession took a major toll on the retail real estate sector but, despite waffling consumer confidence, the sector continues to improve. Retail now accounts for 19% of total U.S. investment volume year-to-date 2013.
Retail experts from Jones Lang LaSalle predict four key forces that will drive an increase in the retail transaction market during 2014:
1. Strengthening Fundamentals
“Total retail investment is expected to increase upwards of 20% in 2014, as pent up demand that was not satisfied in 2013 fuels investments and investors look to balance their portfolios. Driven by strengthening fundamentals, the retail market will continue to turn around despite store closings and consolidation. Vacancy rates are projected to inch downward driven by power center popularity while rents are expected to increase albeit slightly for the fourth straight quarter. We expect gains to become more widespread across markets in the coming year.” — Greg Maloney, president and CEO, Jones Lang LaSalle Retail
2. Retail Portfolios to Hit the Market
"The number of portfolios coming to market, which combine a broad spectrum of B and C retail assets, is expected to increase as REITs continue to dispose of assets in the year ahead. As sellers look to maximize the cycle and their proceeds, putting product on the market in bulk will take advantage of economies of scale; while acquiring small portfolios will allow buyers to immediately expand their footprint in a region. We expect these small portfolio sales to pique the interest of investors looking to deploy capital into value-add assets, with private equity remaining an active buyer in the segment. Institutional investors will still be aggressively looking for single core retail assets around the country.” — Kris Cooper, managing director, capital aarkets, Jones Lang LaSalle
3. Liquidity in the Debt Markets:
“Lenders will continue to seek retail opportunities in 2014 to diversify their allocation of funds. We expect investors to take advantage of the liquidity in the capital markets for retail product and readily available debt to facilitate new acquisitions and refinancings that will ultimately increase leveraged returns. Right now it’s primetime for long-term holders of core and stabilized retail assets to secure fixed-rate financing and lock in today’s historically low rates. Borrowers will continue to take advantage of floating-rate debt for redevelopment of transitional assets in core to secondary plus locations.” — Jimmy Board, executive VP, real estate Investment banking, Jones Lang LaSalle
4. Improvements Pay Dividends
“Improved operating performance and consumer demand for physical points of sale are pushing retail owners to invest into existing assets, giving properties a long-overdue makeover. Investors that execute stalled expansions and renovations can profit tremendously from the market’s upswing and ability to re-tenant vacant space. The much-needed injection of capital will benefit investors who plan to go to market before 2020 with updated product, as they’ll capitalize on the constricted new development pipeline, increased property values and stabilized rent rolls.” — Kristin Mueller, COO, Jones Lang LaSalle Retail