CHICAGO-Even as shoppers spent a record $52 billion in the United States during Black Friday in November, commercial real estate experts predict slow growth for the retail segment for 2012. In its North America Year-End Retail Outlook released Monday, Jones Lang LaSalle said uncertainty in US and global economic indicators have tempered early 2011 projections enough to allow caution to rule for the next year. (It should be noted that at ICSC's New York City conference, currently in progress, the mood was decidedly more optimistic than cautious.)
At the May ICSC RECon event, spirits had been high, as economic indicators such as housing and employment surged higher than in the past two down years, Greg Maloney, president and CEO of JLL Retail tells GlobeSt.com Monday. “Then, all these other things started to happen, and all of a sudden it was ‘here we go again,’” he says. “It just doesn’t take a lot right now, everybody’s leery. If there’s too much uncertainty, retailers are not going to plan growth or hire. People who aren’t sure of their jobs are not going to go out and spend or use credit. That’s the reason for the caution.”
Home sales and employment is still lackluster across the continent, Maloney says. Plus, inflation and price of goods increases make up for the relatively small 3% to 4% increase in annual sales for companies, he says. “Add those to the equation, and sales are still basically flat,” Maloney says.
In the first half, many in the retail industry were predicting large growth expectations for the year, which had to be scaled far back as third and fourth quarter results fell to small gains. National retail vacancy levels dropped only slightly from 7.1% to 7% from third to fourth quarter, posting a year-over-year drop of only 10 basis points. Rents are still at bottom, at a national average of $14.65, with most of the major markets still showing tenant-led deals.
There are positive retail fundamentals, however. There has been 63.8 million square feet of absorption in the past 12 months, according to the JLL report, and new development remains low, at must more than 38.4 million square feet in the past year. However, even with these positives, industry pundits predict store closures could hit 5,000 in 2012 if the current holiday sales drop off.
As most know, grocery-anchored properties in core areas are the most sought after for acquisition, especially if that grocer is the number-one producer in an area. Value-add and outlet centers are also doing well and are investment targets, as are centers with a lot of high-credit or luxury tenants. Maloney says it’s the middle-level centers that are suffering, especially in areas such as Atlanta and Dallas, the two areas with the largest vacancies at 10.2% and 9.1%, respectively. New York City and San Francisco are the fullest markets, with vacancy levels of 2.1% and 3%, respectively.
Even distressed properties are doing better, according to JLL. Total retail properties now stand at $28.7 billion, signaling the sector is now 50% worked out of its distress pool, and new inflows into distress were at a low $1.4 billion. Markets with the most distress include Phoenix, Las Vegas and Chicago.
The retail map for 2012 shows the changing face of retail, as major grocery and department stores try small-footprint stores in urban areas, such as Wal-Mart and Best Buy. Anchor and specialty retailers are also trying large flagship stores in major markets such as New York City, such as Macy’s adding 100,000 square feet to its Herald Square property.
Retailers also expect that the current online trend will continue, and Web-influenced sales will total about 44% of total retail sales, or $1.5 trillion, by 2015. Local retailers will have to ensure their products show up online, that the site reflects availability and that the online and in-store experiences are as seamless as possible, said Lew Kornberg, managing director of corporate retail solutions for JLL.
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