Marcus & Millichap: Improving retail real estate outlook

Calabasas, Calif. -- Broader regional economic growth and improved consumer and retailer finances bode well for retail real estate investments in well-located properties, according to “The Retail Outlook” from Marcus & Millichap Research Services’ second quarter 2013 mid-year outlook for the national retail market and U.S. economy.



The second quarter 2013 mid-year analysis, The Retail Outlook observes that retailers that survived the recession have honed their business models and balance sheets. As a result, retail closings in the first quarter of 2013 fell 70% compared to the same period last year, despite the continuing growth of e-commerce, which is generally thought to shrink store footprints and reduce demand for retail space.



Limited growth in space is helping support property values. The Outlook puts new supplies at 10% to 25% of the long-term average. Significant new construction activity has been occurring in only a few pockets, including Houston, Chicago and Dallas-Fort Worth, with the focus on single-tenant properties and power centers.



While strip and neighborhood centers continue to struggle, the national vacancy rate for shopping centers has fallen from 11.2% to 10.7% over the past year.



Rents are still falling nationally, but coastal markets are seeing strong rent growth.



As the economy continues to recover and job growth begins to strengthen, The Outlook forecasts net absorption of retail space of 79.7 million sq. ft. in 2013 compared to 55 million sq. ft. in new supply. If that materializes, the national vacancy rate for all retail will decline 40 basis points to 7.7% and push the national average asking rents up 1.8% to $16.06 per sq. ft.