Retail REITs Not Impacted by Latest Macroeconomic Bombshell

The latest macroeconomic bombshell to hit the investment world, Brexit, is likely to create uncertainty well into next year. But for retail REITs, however, and most US REITs for that matter, the impact to underlying fundamentals is likely little to none, says the latest report from RBC Capital Markets . From a stock price performance standpoint, the SNL US REIT Retail Index is actually up 2.5% vs. a drop of 3.7% in the S&P 500 index since the Brexit vote. “We suspect that, as the fifth largest economy in the world, the UK will likely survive quite nicely on its own.” In either case, however, the impact to the US retail REITs, which are predominantly US centric in their ownership portfolios, should be minimal, says the firm, with the greatest near term impact on gateway cities that could see fluctuations in tourism based on volatile currency exchange rates. “Turning to perhaps a more important trend for retail landlords, we note that the growth in restaurant spending is continuing to slide, as we show in the accompanying exhibit to the right. Similarly, according to the NPD Group, restaurant traffic is slowing while growth in product pricing between restaurants and grocery stores continues to widen.” The firm ports out that “In a world where entertainment has taken center stage, restaurants have evolved into essentially anchor boxes for regional malls, lifestyle centers, and community centers. Restaurants are often the tenant of choice to replace space lost to big box or anchor vacancies.” But a slowdown in the strength of the restaurant sector would be a negative for the retail landlords in RBC’s view. “In the near term, restaurant openings remain robust even as food and beverage sales growth has slowed—both highlighted to the right. Similarly, the RPI index, as detailed in Exhibit 15, shows both current and future expectations by restaurant operators in bullish territory above 100. But the trend bears watching.”