View the full report: Shopping Center Report – April 2018
SHOPPING CENTER OVERVIEW
Shopping Centers continue to have tight single digit vacancy rates across all types of retail real estate averaging at 4.6% nationally. Location, quality, and strong demographics continue to dictate investment performance as retailers slate closures on less productive locations. Overall, the market reported a slow gain of 1.6% in 12 month rent growth. Areas including Raleigh, NC and Orlando, FL experienced rent rate growths over $1.00 per square foot in Q1 2018 over Q1 2017.
Negative absorption continues to primarily affect shopping malls. Notable tenant closures slated for 2018 include Toys R Us (735 stores), Sam’s Club (63 Clubs with 12 conversions to fulfillment centers), and a number of mall-based tenants including Best Buy Cell Phone Stores (250), Foot Locker (110 stores), Abercrombie & Fitch (60 stores), Bon-Ton Stores under all of the company’s nameplate (42 Stores).
STRIP CENTER HIGHLIGHT
Cap rates held steady quarter over quarter for strip centers without an anchor tenant, decreasing 10 basis point on assets acquired over $2,000,000, up to 30,000 SF. Strip centers showed minimal shifts in rental rates and occupancy across several major markets. Overall, retail availability rates remained in the single digits at 6.6%, with strip centers hovering above the average at 8.2%. Strip and neighborhood centers have led all retail subtypes in percentage of demand growth over the past two years. This growth is primarily attributed to long term leases on NNN deals.
Sales volume for strip centers without an anchor tenant (see criteria below) had nearly half the number of reported transactions quarter over quarter with total sales volume slowing down 39%. Pending deals spilling into Q2 2018 support steady growth.
RETAIL SALES & U.S ECONOMY
As of the first quarter of 2018, all retail sales sectors had an upward tick in sales with the exception of clothing. Cap rates for neighborhood centers are anticipated to remain unchanged with nominal increases based on otherwise healthy consumer spending and the outlook of tax reform benefits. Demographically, U.S. Census data indicates consumers in 35-54 year old age group on average spend 21% more per capita than the average for all age groups.
• GDP 3.0% in 2018, up from 2.3% in 2017.
• Slower job gains likely this year as labor market tightens.
• 10 Year T-Notes at 3.2% by end of 2018.
• Inflation 2.6% in 2018, up from 2.1% in 2018.
• Business spending up 7% in 2018 boosted by expanded tax breaks.
• Housing market price growth 5% by end of 2018.
• Retail Sales growing 4.7% in 2018 (excluding gas).
• Potential hike in interest rates in June and December by Federal Reserve.