NEW YORK CITY—Investor interest in urban retail shows no signs of slowing down, potentially positioning 2015 as the highest year on record for the subsector and outpacing the records set in 2014, according to JLL's Q3 2015 Investment Outlook.
The research shows that retail sales transactions total nearly $59 billion year-to-date, a 10% increase over last year. Also of note, the third quarter's average pricing per square foot was the second highest quarter on record since 2001 at $522 per square foot, reflecting quarter-over-quarter gains of 8.1%. In addition, primary retail investment market cap rate compression is outperforming the US market-at-large, with 80% of the primary markets seeing cap rates compress over 20 basis points year-to-date.
"The heat we've experienced in urban markets has been going on for a while. We expect to easily surpass 2014 levels and break sales records this year," says Margaret Caldwell, managing director of retail capital markets. "With nearly $10 billion in urban sales closed so far, much of this volume can be attributed to deals in markets like New York and Miami, which continue to be key cities for both domestic and international consumers and buyers. Both are experiencing average per-square-foot pricing exceeding $2,000, while urban locales as a whole are enjoying an average 200 basis-point premium over secondary markets."
Premium mall purchases lifted sales volumes during the first quarter of 2015, but steady gains in urban retail investment have boosted overall sales in the latter half of 2015. The urbanization of consumers—particularly Millennials and empty-nesters—is driving both private investors and retailers clamoring for urban space located in or around mixed-use developments. As a result, urban investment has taken up an increased proportion of transactions (nearly 22% of year-to-date) with investment volumes totaling near $10 billion.
The grocery industry is seeing increased competition as more players enter the field, and consumers who once purchased all their groceries in one location are now splitting their shopping between as many as five stores. Investment into grocery assets makes up 20% of total retail investment volume to date, reaching nearly $9 billion year-to-date, an 8.5% increase over last year. Grocery assets in primary markets are the darling of investors, with a 57 percent jump in investment year over year.
"Investors are willing to pay a premium for assets in markets with healthy demographics, strong income growth and robust tourism," adds Dave Monahan, managing director of retail capital markets. "Going forward, retail investment will continue to follow the rooftops, particularly in markets with a strong international presence that supports high-end urban retail. Expect to see 2016 levels have a slight uptick, piggybacking on a strong 2015 close."
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
