{"id":1004118656,"date":"2015-05-04T11:17:22","date_gmt":"2015-05-04T19:17:22","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004118656"},"modified":"2022-12-05T12:40:11","modified_gmt":"2022-12-05T20:40:11","slug":"may-issue-retail-a-market-awash-with-cash","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/may-issue-retail-a-market-awash-with-cash\/","title":{"rendered":"May Issue: Retail\u2014A Market \u2018Awash with Cash\u2019"},"content":{"rendered":"
\"The<\/a>

JLL manages premier Miami retail center The Palms at Town & Country<\/p><\/div>\n

By Anna Spiewak, Senior News Editor<\/em><\/p>\n

So far, Simon Property Group Inc. has not succeeded in its quest to snap up Macerich Co. and make its already massive footprint even bigger.<\/p>\n

But the mere prospect of that blockbuster deal foreshadows more of the same in the nearest future.<\/p>\n

\u201cMacerich has a strong, independent streak, and they like doing their own thing,\u201d Garrick Brown, vice president of research at DTZ, told CPE. \u201cThey\u2019re very successful at it. They don\u2019t have to merge with anyone at the end of the day, they don\u2019t have to sell, so they\u2019ll hold out for the top dollar.\u201d<\/p>\n

Brown added, however, that he does predict more M&A activity from private investment groups and mall REITs alike\u2014\u201cnone as big as Simon and Westfield, but there\u2019s other players out there. I\u2019m sure they\u2019re scouring the market already.\u201d<\/p>\n

According to Real Capital Analytics Inc., the pace of investment activity last year was brisker than at the height of the market in 2007. Sales of retail assets topped $82.6 billion in 2014, surpassing the pre-recession peak of $81.4 billion.<\/p>\n

This activity is attributed mainly to pent-up investor demand and the improving economy.<\/p>\n

\u201cThere are some retailers that haven\u2019t been deploying that capital to grow like they were four or five years ago. As a result, there are retailers who are sitting on a lot of cash,\u201d Wally Wahlfeldt, executive vice president for national retail corporate services at JLL, told CPE. \u201cThere\u2019s also investor cash, private equity firms that are looking to invest in retail, and we\u2019re seeing a lot of that activity, as well.\u201d<\/p>\n

Retail net absorption totaled 109.8 million square feet nationally in 2014. Deliveries tracked comfortably below absorption at 60.6 million, helping push down vacancy 60 basis points since the end of 2013. Average rents rose 2.1 percent last year, and further increases are almost certain as long as new supply remains constrained. Nevertheless, rents are unlikely to reach their previous peak until 2018, according to JLL\u2019s fourth quarter 2014 retail forecast.<\/p>\n

Observers say that foreign capital drawn to the stable U.S. economy is boosting a lot of these numbers, particularly those for gateway markets.<\/p>\n

\u201cGlobal money is coming here, because we\u2019re the only country where GDP is increasing right now,\u201d Brown explained. \u201cThere\u2019s uncertainty in Europe, a declining GDP in Asia\u2014you\u2019ve got all these investors trying to funnel their money here because we\u2019re the only place where the economy is appearing to grow at levels that are close to robust.\u201d<\/p>\n

Avoid the Middle<\/strong>
\nSo what sorts of retail assets are investors chasing?
\nAnalysts report that the hot sellers are luxury high-end malls, fast-casual dining, single-tenant properties (especially drugstores) and grocery-anchored centers.<\/p>\n

\"Rosedale<\/a>

Rosedale Center, a 1.1 million-square-foot regional mall in Rosedale, Minn., is managed by JLL.<\/p><\/div>\n

\u201cThe common trend is you don\u2019t want to be in the middle,\u201d said Brown. \u201cThe luxury shopper came back after the recession, (but) the middle class downsized and went into frugality mode, and hasn\u2019t returned.\u201d
\nWith that in mind, investors favor high-end malls in urban clusters.<\/p>\n

Grocery-anchored centers offer the evergreen appeal of necessity retail. Restaurants are enjoying robust expansion and face relatively little competition from e-commerce. That helps explain why the restaurant sector has accounted for 45 percent of retail growth in units over the last five years, Brown noted.
\nOffice supply retailers, on the other hand, got hit hard by competition from online sales. That led to the merger of the top three: Staples, Office Max and Office Depot.
\n\u201cYou\u2019re going to see consolidations like that, where retailers at mid-price are really hammered by the middle class\u2019s frugality, so some of them will merge with each other as a matter of survival,\u201d Brown concluded.
\nAnother factor making more consolidations likely is investor interest in turning around troubled retailers.<\/p>\n

That is widely expected to be the fate of Sears, JC Penney or both. Sears is planning to close between 130 and 235 Sears and Kmart stores this year, while JC Penney is trimming about 39 stores, according to JLL.<\/p>\n

\u201cThe toughest asset to trade is the unanchored strip center,\u201d said Michael Lagazo, senior retail advisor with Sperry Van Ness. \u201cThe investor has to pay the mortgage, so they take on these self-funded mom-and-pop leases. But when you lock in these leases, it\u2019s not as attractive to lenders and institutional investors.\u201d
\nTransactions involving urban\/High Street locations also stand out. Investment volume for those assets jumped 60 percent to $13 billion, according to RCA.<\/p>\n

Pricing for retail properties suggests that investors are still willing to pay top dollar for premium assets in the six major metro markets. Cap rates for all retail acquisitions fell 30 basis points nationally, to 6.7 percent, last year, only a hair above the 6.5 percent rate recorded in 2007, according to RCA.<\/p>\n

While retail construction is generally ramping up across the country, favored product types vary considerably by market. In Miami, Washington, D.C., and New York City, urban storefronts dominated last year. Broward County\/Fort Lauderdale and Orange County have mostly mall-focused construction. And all of Palm Beach\u2019s construction was for neighborhood centers, community centers and strip malls, while Orlando\u2019s was all about power centers, according to JLL\u2019s latest retail report.<\/p>\n

\u201cYou\u2019ll see a lot of acquisitions in grocery-anchored centers. Last week, Publix announced acquiring a handful of grocery-anchored centers, even though they\u2019re a grocery operator,\u201d Lagazo said, adding that Walgreen\u2019s also announced plans for expansions.<\/p>\n

T-Mobile, a JLL client, recently bought out Metro PCS, but is now itself a target for acquisition by AT&T and Sprint. This scenario is likely to crop up repeatedly in the next few years.<\/p>\n

\u201cIf you\u2019re a healthy retailer and you\u2019re only growing 10 to 12 stores a year, you\u2019re just not showing your shareholders the growth that they want to see,\u201d Wahlfeldt concluded. \u201cSo if you sit on your hands and you start to see sales pick up again, you\u2019ve got to do something\u2014you\u2019ve got to start growing again, either organically or through acquisition.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The retail sector is picking up, even if in a bifurcated manner.<\/p>\n","protected":false},"author":952,"featured_media":1004118659,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37301],"tags":[],"class_list":["post-1004118656","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"yoast_head":"\nMay Issue: Retail\u2014A Market \u2018Awash with Cash\u2019 - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/may-issue-retail-a-market-awash-with-cash\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"May Issue: Retail\u2014A Market \u2018Awash with Cash\u2019\" \/>\n<meta property=\"og:description\" content=\"The retail sector is picking up, even if in a bifurcated manner.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/may-issue-retail-a-market-awash-with-cash\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2015-05-04T19:17:22+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-05T20:40:11+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2015\/05\/The-Palms.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"683\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Anna Spiewak\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/may-issue-retail-a-market-awash-with-cash\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/may-issue-retail-a-market-awash-with-cash\/\",\"name\":\"May Issue: Retail\u2014A Market \u2018Awash with Cash\u2019 - 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