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August 28, 2015

Retail’s real estate recovery is set to show real promise in upcoming years. With the potential for high yield, plenty of investors are shopping for stores. JLL’s Q2 U.S. Investment Outlook highlights five key takeaways from today’s retail sector:

  1. Storefronts shine: Driven by trades in New York, urban/storefront retail accounted for 24.5 percent of second quarter transaction volume – a five percent increase from comparable 2014 figures. Grocery-anchored shopping centers remain another popular choice among investors, accounting for 19.6 percent of Q2 transactions.
  2. Deliveries of new space decline: Total deliveries of new retail space in major markets rose 22.1 percent quarter-over-quarter to 11.6 million square feet, but remain down considerably from the same time last year. Primary markets lead construction by a 2:1 ratio, with Chicago, Houston and DC leading the way with deliveries over 600,000 square feet each.
  3. Price(ier) per-square-foot: Nationally, vacancy rates continue to inch down, falling to 5.9 percent this quarter and driving rents upward across major markets. If retailers want presence in Hawaii or New York City, it’ll cost them. Both markets surpass $1,000 per-square-foot (p.s.f.), with New York City retail’s average p.s.f. hitting $2,860 in Q2, its highest level in three quarters. Hawaii averaged $1,746 p.s.f., a 59 percent increase year-over-year.
  4. Who’s buying and who isn’t necessarily selling: Plenty of investors are looking to acquire retail product, but current holders may not be looking to sell. Equity fund investment more than doubled year-over-year, accounting for 18 percent of transaction volume. But rents for core assets are rising, leading many current owners to hold onto their properties. Expect a wave of retail buildings to hit the market in 2016 and 2017.
  5. But those who are selling…: Private sellers drove the bulk of selling activity in the second quarter, focusing on grocery-anchored and urban retail properties. Public sellers almost doubled their share of selling but institutional investors are not heading to market yet, with their disposition totals decreasing by nearly half.

Read the full Q2 2015 Retail Investment Outlook

James Cook

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