MIAMI—The International Council of Shopping Center's convention coming to Las Vegas in less than a month, we decided to sit down with one an executive from one of the leading real estate investment trusts in the shopping center space to discuss the state of the industry. We caught up with Glenn Cohen, CFO of Kimco Realty, to get his take on the biggest challenges for retailers in 2013. In part one of this exclusive interview, he also discussed his views on the economy as it relates to commercial real estate and his predictions for the pace and depth of recovery in 2013.
GlobeSt.com: What are the biggest challenges we face this year?
Cohen: One of Kimco's biggest concerns as a major owner of retail real estate is the economic health of the consumer. For a necessity-based neighborhood and community shopping center business like ours, the consumer's the key to the sale, and increased foot traffic to our retailers results in higher rents over time. While the consumer is currently somewhat resilient, I think there are some challenges that will result from the expiration of the payroll tax holiday, which will take some time to play out.
Another challenge that the retail market is facing is the world of e-commerce. Many retailers are addressing this by developing internal e-retailer programs and making them complementary to their brick and mortar businesses, but it's still a force that needs to be dealt with. In particular, there are retail categories such as the office supplies, electronics, and bookstore sectors which remain challenged and where downsizing may continue.
GlobeSt.com: What is your view of the economy as it relates to commercial real estate? What do you predict is the pace and depth of recovery in 2013?
Cohen: Commercial real estate has certainly recovered quite a bit from the Great Recession. Overall, the economy is on a slow but steady path of recovery. We've made a lot of progress both in the retail sector and within Kimco as a whole. Kimco's same-site NOI growth at 3.4% is the highest level it's been in five years, and with the lack of new retail development industry-wide, this bodes well. Rents have been increasing and at an accelerated pace. Our new leasing spreads are starting to hit double digits consistently.
Regarding the economy, it's going to ultimately come back to how well the consumer's doing, but the good news is that retailers have strengthened their balance sheets. For retailers, the issue is becoming “How do we grow from this point?” I think the increase in tax rates and the expiration of the payroll tax holiday may throw a bit of a wrench into the progress that's been made, and I think that's why the Fed is being somewhat cautious in its bond buying program to help keep rates low and to ensure that the recovery, which seems to have gained traction, continues for the long haul.
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