Retail Gains Steam in 2Q16

Jeff Rinkov is the CEO of Lee & Associates.

LOS ANGELES—Early 2016 was marked by some flattening—if not losses—in the retail market, with massive store closures announced and wan consumer spending. Sentiment surveys from Allen Matkins showed that industry insiders expected the market to slow as a result. However, things may be turning around. The 2Q16 report from Lee & Associates , which GlobeSt.com has obtained exclusively, shows that the retail market has gained momentum, with dips in vacancy rates and increases in rents and consumer spending in some major categories, like food services and health and wellness. “This is a little bit surprising given the news stories, especially when you hear about store closings and repositioning, but I also think that this is about the concentration of successful retail in urban areas and a real lack of construction,” Jeff Rinkov , CEO of Lee & Associates, tells GlobeSt.com. “If you take a look at almost every city that we featured, construction is trending downward. That puts pressure on the existing inventory and it helps to reduce vacancy rates and produce rent growth. We have shown pretty solid rent growth in the cities that we featured throughout the country.” Although there is little retail construction, a glut of big box retail was expected to hit the market as a result of store closures. However, it may be too soon to see the impact of those shutterings—if that supply will be absorbed or if it will boost the vacancy rate. “It is a combination of timing and transition,” says Rinkov. “Some of those story closures are just now getting reflected in vacancy rates, so they may not be recorded until the end of the second quarter or beyond that. Retailers are finding where the balance is between online presence and brick and mortar presence. That is where you are seeing some of the hurting right now.” The Lee & Associates report surveyed markets across the country, including Orange County and San Diego in the West, Dallas/Fort Worth in the Southwest, Indianapolis in the Midwest, Atlanta, Greensville and Charleston in the South and Manhattan in the East. Vacancy rates were down in every market, except for Manhattan, but rental rates and construction starts were more mixed. In Orange County, San Diego and Manhattan, construction was actually up. This volatility, however, in the retail sector isn’t unusual, according to Rinkov. “Retail is different because it is solely consumer driven, and consumers tend to be fickle and are drawn by the newest and nicest retail option,” he says. “That creates a challenging environment, especially when the volume of retail options is unlimited because of the addition of ecommerce. When work patterns change and occupancy patterns change for office, it takes a lot longer for that to happen. Industrial is a slower moving target, and multifamily is driven by general and broad-based economic factors. Retail is more subject to the direction of the economy and what the consumer is doing at that particular moment.” While we focus on movement quarter-to-quarter, Rinkov says that if you look more broadly at the retail market over the last month, the story is much more positive, with more gains than losses. “We see the last 12 months as being a more positive pattern,” he says. “We see a pattern of a more improving economy in general and a pattern of capital that is finding the US and retail product type as being very favorable. It is an expansive time for the general economy, even as wage growth hasn’t really shown up.” This is a trend that he expects to be consistent. While there may be some volatility at the end of the year, especially as some of the store closure announcements happen, but the outlook for the retail market is also positive. “I think that we will see retail vacancy rates continue to migrate downward and rent growth will continue to be sustainable over the next 12 months,” says Rinkov. “There may be some volatility, but there is still good growth and good demand in retail.”