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Monday, 14 May 2018

Ten-X Projects Retail Investments to Remain Flat in 2018

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Commercial Real Estate Direct Staff Report

Investments in retail properties last year declined by 16.8 percent to $64.2 billion, the lowest volume since 2013, according to Ten-X Commercial.

That was 30 percent less than the $91.7 billion of sales volume in 2015. It expects volume this year to match last year's.

Last year was characterized by the wide gap between what prospective investors were willing to pay for properties and what sellers were willing to accept.

"There was sort of a ground stop on deals because buyers thought prices should be lower and sellers thought prices should be higher," explained Peter Muoio, chief economist of Ten-X. This year, there's more agreement between buyers and sellers that rates are in fact increasing, so volume would increase, all other things remaining equal. But that's not the case.

Property investors remain cautious about the increasing adoption by consumers of e-commerce, which accounted for 14.2 percent of all non-automobile retail sales last year, up from 5.5 percent in 2012. Ten-X projects the share of e-commerce will continue to increase.

Consumers are also spending more of their discretionary income on travel and experiences, such as sporting events and concerts, as opposed to clothing, jewelry and other retail staples. That's contributed to the growing number of retailers that have filed for bankruptcy or opted to go out of business. That list includes Toys R Us, Radio Shack, Payless ShoeSource and The Limited.

"Every time some big retailer goes out of business or retailers say they're going to shut down some number of stores, it makes the news," Muoio said. That makes investors "wary about the retail segment, and they become more conservative about putting money into the segment."

Successful investors in retail properties will "have either the right location or the right re-development or re-positioning plan for the center that fits into how people are spending their money today," Muoio said.

He said some property owners are adding fitness centers, bowling alleys and other entertainment venues to their properties in order to attract customers who they hope visit other stores in the centers. Some also have converted their properties, or parts of them, into distribution facilities, providing last-mile coverage for e-commerce companies, including Amazon.com, or they've added pick-up storage bins where customers can pick up items they've purchased online.

Ten-X has identified Denver, Dallas, Houston, Salt Lake City and Austin, Texas, as the most attractive markets for retail properties. Those each have growing populations, strong economies and strong housing markets.

On the flip side, Detroit, Kansas City, Mo., Chicago, northern New Jersey and Memphis, Tenn., are areas in which investors should sell because they have sluggish economies, stagnant or decreasing populations and too much supply of retail space.

For the U.S. as a whole, Ten-X expects retail rents to increase by 2.4 percent to $18.67/sf by 2021 and vacancies to increase by 30 basis points to 10.3 percent.

In Austin, it expects rents will increase by 7.9 percent to $23.09/sf by 2021 and vacancies to remain flat at 5.5 percent. In Denver, it expects rents to increase by 7.5 percent to $17.95/sf, while vacancies should decrease by 10 bps to 9.1 percent.

Houston should see rents increase by 7 percent to $17.23/sf and vacancies decrease by 10 bps to 11.1 percent, while Dallas should see a 6.4 percent increase in rents to $17.21/sf and a 20-bp increase in vacancies to 11.8 percent. Ten-X expects rents in Salt Lake City to increase by 4.9 percent to $15.28/sf and vacancies to decrease by 20 bps to 12 percent.

Ten-X's top-five sell markets are each expected to see rents decrease and vacancies increase by 2021.

In Detroit, rents are projected to decrease by 2.1 percent to $15.21/sf and vacancies to increase by 90 bps to 12.1 percent. The company expects rents in Kansas City to decline by 2.5 percent to $12.27/sf and vacancies to increase by 50 bps to 11.9 percent.

Chicago should see rents decrease by 1.8 percent to $17.41/sf and vacancies increase by 50 bps to 13.1 percent, while northern New Jersey should see a 1.7 percent decline in rents to $25.68/sf and an 80-bp decline in vacancies to 8.9 percent. In Memphis, Ten-X expects rents to decline by 0.6 percent to $12.36/sf and vacancies to increase by 110 bps to 14.2 percent.

Comments? E-mail Tim Casey or call him at (267) 397-3347.


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Additional Info

  • Syndicate to Realpoint: No
  • Sector: Retail
  • Subject: Institutional Investment (INS), Property Acquisitions (ACQ)
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Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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