CHICAGO—“Times are good,” Michael Podboy, EVP and chief investment officer at InvenTrust Properties Corp., tells GlobeSt.com about the current retail market for outdoor shopping centers. He is speaking from both the perspective of owners and sellers, explaining that high demand from tenants and from investors is boosting both property values and rental rates in the retail sector.

“If you look at us, we are benefitting from the good times, not only in our existing portfolio, but as we go out and transact," says Podboy. "There is not a lot of new supply in the market and not a lot of new development, and some folks are saying that we are not even in a position to replace or compensate for obsolescence. That is allowing people to transact properties, and rotate portfolios, such as what we are doing, as well as be opportunistic because you are buying into a marketplace that is more favorable to rates and rents.”

These market fundamentals have led to cap rate compression and higher price tags on retail shopping centers. However, Podboy notes that while supply and demand is a large component of cap rates, interest rates also contribute to the lower cap rate environment. Still, even as cap rates compress, he says that these centers are still a great value proposition, especially considering the underlying fundamentals—including lagging development and increasing demand.

When he is identifying an acquisition opportunity, Podboy says that location is key, along with job growth and population growth in a particular market. The tenant mix is also an important factor. “Tenant mix no matter what is important,” he says. “I think you have to look at the differences between a grocery-anchored center and a power center to determine what tenant mix is going to do. We think a lot about how we are growing our site and how we are getting the most out of our real estate.” While the tenant mix varies from market to market and center to center, Podboy said that food-service tenants are a particularly strong driver of traffic. “Food is an ever more important component,” he adds. “Food offerings of any kind, either grocers or eateries, are a heart of the center; it is always a natural driver.”

To maneuver through the steep competition for these assets, Podboy says that the company relies on condensed timeframes and all-cash transactions so that there are no financing contingencies. Additionally, being active in the marketplace garners the attention of potential sellers who are looking to transact off market. “Although our average acquisition size is north of $10 million, we will continue to look at some of the unanchored strip malls near our existing centers as a way to continue to grow our footprint and grow our platform,” he says. “We're very focused on continuing to develop our hub and spoke system, we feel that is a way for us to continue to increase our exposure especially in an investment environment where there is very little development going on.”

Podboy doesn't see the demand slowing anytime soon. For the rest of the year, he expects investors to remain bullish in this market, for everything from power centers and strip malls to lifestyle centers. “In terms of what is coming in the marketplace, I see a good mix of power centers and grocery-anchored centers. I also see some larger lifestyle centers coming to market,” he says. “A function of that is that as there is more capital in the marketplace, there is a greater appetite for those, especially among the folks that can't buy regional malls, so they are looking at lifestyle centers as a proxy for regional malls.”