Study: Real estate assets are ‘surprisingly resilient’

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Study: Real estate assets are ‘surprisingly resilient’

By Al Urbanski - 02/27/2018
Has the retail apocalypse cometh? Nay, says research company MSCI — at least not for investors with an eye for the right property.

“Despite the inexorable rise of e-commerce over the last 20 years, retail asset performance has been surprisingly resilient, providing stable returns and operating metrics during this time period,” said a new MSCI report titled “Retail Apocalypse: Should Mall Owners Be Worried?”.

Indeed, over the past five years, retail real estate assets have produced an annualized total return to investors of 10.4%, compared to 10% for non-retail assets, according to MSCI.

What’s more, when comparing regional malls, neighborhood centers, and power centers, MSCI found rates of return for these various formats to be in the same ball park.

Neither have investors been put off by the 2017 retail vacancy rate of 7.4%, which was in line with non-retail properties and was lower than the retail vacancy rate of the early 2000s.

Why are shopping centers performing better than the general public thinks they are? Here are some of the reasons proposed by report authors Amit Nihalani and Bryan Reid:

• Consumer spending is not a zero-sum game. Every additional dollar of online spending does not equate to a dollar less spent in stores.

• Bankruptcies and closures probably generate more press coverage than plans for expansion.

• Expanding retailers operate in thriving segments, while closures tend to be concentrated in segments with declining profitability.

• The growth of omnichannel strategies — where retailers adapt their online and offline strategies to complement each other.

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