ENCINO, CA-The good news midway through 2011 is that the economy has regained its footing in many ways and the recovery thus far has been fairly broad-based. That was part of the assessment offered by Hessam Nadji, managing director of research and advisory services at Marcus & Millichap Real Estate Investment Services, during a special mid-year retail market outlook webcast titled “Soft Patch or Recession.” The webcast title was based upon Nadji’s analysis that, although he does not expect a double-dip recession, the US is “in a soft patch” economically.
The event, presented by locally-based Marcus & Millichap, attracted roughly 2,000 investors nationwide and was presented by Bill Rose, national director of the national retail group; Nadji; and William Hughes, managing director of Marcus & Millichap Capital Corp.
Nadji focused on the overall economic situation as well as underlying data on retail fundamentals. He pointed out that the third and fourth quarters of 2010 were pretty good, but were highly influenced by government initiatives. “We are now into a transition phase. The training wheels are coming off,” he said.
One of the primary reasons that the US has entered an economic soft patch, Nadji explained, was the major movement in energy prices. Other topics he touched on included the single-family housing and condo markets, which he said have yet to enter a sustainable recovery because of the waves of foreclosure that have yet to be processed. Overall, he expects continuation of the recovery, but at a sluggish pace.
In terms of retail, one piece of good news Nadji cited is the strength of sales. “The luxury category took a major hit in terms of retail sales, but it came back much more robustly than any other segment,” he said. The fastest-growing segment in retail, he pointed out, is Internet sales. “Online sales are pressuring retailers,” he said. “This is important to think about, but at the same time, traditional store-based retail is also recovering nicely.”
Lowest retail vacancy markets Nadji pointed to include: San Francisco; San Diego; Washington D.C.; Orange County, CA; San Jose, CA; Los Angeles; and Boston. Higher vacancy markets mentioned include: Cincinnati, Cleveland, Phoenix, Indianapolis, Dallas/Ft. Worth; and Detroit.
Up next on the webinar was Hughes, who reviewed capital markets through the first half of 2011. “Lenders’ attitude toward retail is stable,” he said. “Deals that are being done are primarily happening in larger, primary market areas. They are best-of-class, quality with proven revenue streams.” Capital is coming from commercial banks, life insurance companies, CMBS lenders and finance companies, he said. Overall, it’s a great time to borrow money, said Hughes. “There is plenty of money out there if you have the right transaction.”
Rose concluded by agreeing with Hughes that the capital market is liquid and the economy is on its way up. “Momentum continues in the investor pools, given the good values we are seeing in liquidity,” he said.
The private investor continues to dominate the US investment market in the retail category, Rose said. “If we look at property type average price per square foot, the power center, specialty center, neighborhood center and community center, there has been a growth trend over the past three years.”
Who are the buyers? Rose says that private investors account for much of the transaction volume across the country. Numbers in 2011 through May show the buyer composition as follows: 39% private; 12% foreign; 13% public; 19% equity funds; 12% institutional players; and 4% user/other, said Rose.
“We are in a positive-trend environment,” he said. “Good factors are in front of us. It is a good time to invest in US retail.”
Marcus & Millichap is part of ALM's Real Estate Media Group's Thought Leadership program, which features the StreetSmart blog by Nadji. For more information on Thought Leadership, contact Scott Thompson at [email protected].
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
