NEW YORK CITY—As retailers ready themselves for the holiday season—for which many speakers at the International Council of Shopping Centers' National Deal Making conference here earlier this week forecast a strong outcome—a new report says the sector's investment sales market may be heating up.

Retail investment sale volumes totaled $50.8 billion through Q3 2016, driven by an increase in large, high-quality retail transactions, according to JLL's Q3 2016 Investment Outlook, released at ICSC here. Transactions in excess of $100 million accounted for more than two-thirds of deal flow in Q3 and average cap rates have fallen by 41 basis points and sit at 4.5%, an indication of oncoming positive performance.

The pick-up is correlated to a long-awaited investment opportunities, such as trophy malls and urban assets that are finally coming to market in the latter-half of the year. Demonstrated by improving investment volumes, investors are becoming more comfortable with the US retail landscape, the report states. JLL expects this momentum to continue into 2017.

“The early part of 2016 was impacted by significant geopolitical and financial strains that made investors a bit more cautious,” asserted Margaret Caldwell, managing director of retail investment sales, JLL. “As volumes decreased and pricing softened, it clearly transitioned to a buyer's market and we saw that materialize this quarter with buyers jumping back in. Many of them missed out on a similar opportunity in 2009 and they were not going to be left on the side lines again.”

Further, as primary market rents have softened, investors are taking notice of secondary markets and making large strategic acquisitions there. The mall sector, in particular, has benefited, as secondary market volumes have exploded by 510% for the asset class.

Secondary market urban volumes also increased in the quarter by 64% year-over-year, buoyed by activity from developers and REITs. With the continued softening in primary markets, secondary ones should continue to benefit from increased capital flows.

“Transaction volumes will continue to be strong for 'A' properties in 'B' markets,” adds Chris Angelone, managing director of retail investment sales, JLL. “There is still plenty of capital for those kinds of deals – as we saw this quarter. The problem is that there just aren't a plethora of those properties available out there, which has contributed to the lower transaction volumes we've seen so far this year. For the near-term, I think transaction volumes on 'B' and 'C' properties will remain subdued.”

Meanwhile, the report states, inbound investment is picking up. Asian investors have been active, with significant capital coming from South Korea and Singapore. However, Australia leads investment year to date – a trend that is likely to continue as QIC Global Real Estate is in the process of raising $1 billion for its first QIC Shopping Centre Fund that will invest in US retail products.

With improving fundamentals in the underlying economy and retail markets, the US is expected to remain a target for foreign investors in 2017.

“In the mall sector, we are likely to see more of the same in the first half of 2017 with more 'B' assets coming to market,” added Caldwell. “Large mall transactions in secondary and tertiary markets have a limited amount of investor interest due to the lack of available nonrecourse debt.”

She continued, “Primarily private investors are active in this space but we are beginning to see new investors considering mall opportunities due to the attractive yields. The most active deals in the mall space are ones that can either be bought by all cash buyers at attractive returns or have repositioning opportunities.”

From the open-air perspective, Angelone suggested that the market will continue to see a focus on urban and grocery-anchored centers. “Urban will continue to be red-hot, driven by institutional, high net-worth and foreign capital. We've seen suburban markets begin to mimic urban ones in terms of format and tenant mix. Restaurants and fitness are the new desired junior anchors and walkability also is gaining in importance.”

NEW YORK CITY—As retailers ready themselves for the holiday season—for which many speakers at the International Council of Shopping Centers' National Deal Making conference here earlier this week forecast a strong outcome—a new report says the sector's investment sales market may be heating up.

Retail investment sale volumes totaled $50.8 billion through Q3 2016, driven by an increase in large, high-quality retail transactions, according to JLL's Q3 2016 Investment Outlook, released at ICSC here. Transactions in excess of $100 million accounted for more than two-thirds of deal flow in Q3 and average cap rates have fallen by 41 basis points and sit at 4.5%, an indication of oncoming positive performance.

The pick-up is correlated to a long-awaited investment opportunities, such as trophy malls and urban assets that are finally coming to market in the latter-half of the year. Demonstrated by improving investment volumes, investors are becoming more comfortable with the US retail landscape, the report states. JLL expects this momentum to continue into 2017.

“The early part of 2016 was impacted by significant geopolitical and financial strains that made investors a bit more cautious,” asserted Margaret Caldwell, managing director of retail investment sales, JLL. “As volumes decreased and pricing softened, it clearly transitioned to a buyer's market and we saw that materialize this quarter with buyers jumping back in. Many of them missed out on a similar opportunity in 2009 and they were not going to be left on the side lines again.”

Further, as primary market rents have softened, investors are taking notice of secondary markets and making large strategic acquisitions there. The mall sector, in particular, has benefited, as secondary market volumes have exploded by 510% for the asset class.

Secondary market urban volumes also increased in the quarter by 64% year-over-year, buoyed by activity from developers and REITs. With the continued softening in primary markets, secondary ones should continue to benefit from increased capital flows.

“Transaction volumes will continue to be strong for 'A' properties in 'B' markets,” adds Chris Angelone, managing director of retail investment sales, JLL. “There is still plenty of capital for those kinds of deals – as we saw this quarter. The problem is that there just aren't a plethora of those properties available out there, which has contributed to the lower transaction volumes we've seen so far this year. For the near-term, I think transaction volumes on 'B' and 'C' properties will remain subdued.”

Meanwhile, the report states, inbound investment is picking up. Asian investors have been active, with significant capital coming from South Korea and Singapore. However, Australia leads investment year to date – a trend that is likely to continue as QIC Global Real Estate is in the process of raising $1 billion for its first QIC Shopping Centre Fund that will invest in US retail products.

With improving fundamentals in the underlying economy and retail markets, the US is expected to remain a target for foreign investors in 2017.

“In the mall sector, we are likely to see more of the same in the first half of 2017 with more 'B' assets coming to market,” added Caldwell. “Large mall transactions in secondary and tertiary markets have a limited amount of investor interest due to the lack of available nonrecourse debt.”

She continued, “Primarily private investors are active in this space but we are beginning to see new investors considering mall opportunities due to the attractive yields. The most active deals in the mall space are ones that can either be bought by all cash buyers at attractive returns or have repositioning opportunities.”

From the open-air perspective, Angelone suggested that the market will continue to see a focus on urban and grocery-anchored centers. “Urban will continue to be red-hot, driven by institutional, high net-worth and foreign capital. We've seen suburban markets begin to mimic urban ones in terms of format and tenant mix. Restaurants and fitness are the new desired junior anchors and walkability also is gaining in importance.”