Many community shopping center developers are seeing double-digit increases in rent rates, largely due to rapid expansion by some tenants. But challenges remain on the tenant and leasing side.
"We're seeing unprecedented tenant demand, which is giving landlords unprecedented pricing power," said Daniel Hurwitz, senior executive vice president and chief investment officer of Developers Diversified Realty, Beachwood, Ohio.
That likely will offset any problems in re-leasing even for 2007, because even troubled tenants have good locations. The supermarket business, with its tight margins, remains a worry as competition increases, despite chains such as Albertsons turning around strongly.
"Everybody is selling groceries today, even dollar stores," said David Henry, vice chairman and chief investment officer of Kimco Realty, New Hyde Park, NY.
The rapid expansion of health clubs could have resulted in overbuilding, and Netflix and other technologies pose threats to theaters and popular anchor Blockbuster Video. But even they could benefit shareholders.
"These retailers have great real estate," said Michael Carroll, executive vice president of retail operations for New Plan Excel Realty Trust. "We would look forward to getting it back."
Other challenges are more practical in nature. Costs are increasing, and attracting talent is extremely difficult.
"We've just completed a shopping center in Florida," noted Dennis Gershenson, chairman, president and CEO of Ramco-Gershenson Properties Trust, Farmington Hills, Mich. "When we started it, the materials costs were 18 percent lower. And you can't beg, borrow or steal labor."
But, overall, cap rates should stay at current levels, and capital will remain plentiful, the panelists said. Acquisitions also should remain steady, even as the largest companies continue to exit tertiary markets.
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