Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Thursday, 11 January 2018

Apocalypse Not: Why The Demise of Retail Centers Is Some Truth, Some Hype

Some retail tenants at malls across the country are struggling, but claims that the entire sector is failing may be premature.

By Ryan Severino, Chief Economist at JLL

One of the following two things is true: either people who work in commercial real estate are liars or they are the only people who do not go to malls.

Of course I am being a bit facetious, but at virtually every conference I attend or speak at, I inevitably hear someone say that malls are dead or, more broadly, that retail is dead. To be fair, real estate players are not alone. The term, “Retail Apocalypse” is now commonly used. Is that the truth or just hype? It’s a bit of both, but leans mostly toward hype because this declaration of Armageddon paints the sector with a very broad brush across too many dimensions. By digging into what’s behind the pessimism, we can see why some retail centers are struggling and others are thriving.

Why So Sad?

The reason for all the doom and gloom in retail real estate is e-commerce. E-commerce sales continue to grow far faster than overall sales. As of last year’s third quarter, e-commerce was growing at a roughly 16-percent rate, while overall sales were growing at a roughly 4-percent rate. Official figures show that e-commerce constitutes about 9 percent of overall retail sales. But that understates the true percentage (see story on page 4). On one hand, 9 percent is a minority of overall sales. On the other, even at just 9 percent, e-commerce has caused serious problems for some brick-and-mortar retail centers. Even if e-commerce sales growth slows from its blistering pace, it will continue to grow faster than overall sales and be increasingly disruptive to retailers.

Who Bears the Brunt?

Although e-commerce continues to grow, it’s not impacting all retailers equally. Those most at risk are the purveyors of what can be thought of as commoditized goods. These are common, general goods that consumers are broadly familiar with. The imperiled retailers of such items generally fall into two categories: those that sell other producers’ goods, and...





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  • Breaking mortgage, CMBS, and REIT news

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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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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

 

RCA CPPI

 

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CMBS 2.0 Spreads

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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

 

 

 

REITCafe

  • Challenging Retail Environment Weights on REITs
    Mixed economic news is weighing on retail markets, pushing REIT performance down in 2015. This week, the National Retail Federation announced that back-to-school spending is expected to be down 9.3% in 2015. This news came on the heels of a report from the Commerce Department stating that retail sales declined 0.3%...
     
  • US REITs Feeling Effects from Turmoil in Greece and China
    International economic forces have taken center stage this week, affecting both US stock markets and REITs. The crash in the Chinese stock market and ongoing concerns about the future of Greece in the eurozone drove markets down during the first half of the week. REITs fared better than the overall market...

  • What Does Increased Construction Mean for Apartment REITs?
    REITs so far this year have raised $17.1 billion of capital through the sale of unsecured notes, bringing the total raised over the past two and a half years to just more than $75 billion. That’s more than they raised during the previous five years. The massive volume shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark...
shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark against which most REIT’s price their bonds
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