Essential Retail Continues to Interest CenterSquare
US Sunbelt markets are the latest for the company, which announced a joint venture with Arch Street Capital
No matter the pandemic’s effects on consumer shopping, there’s hardly been a better time to invest in essential retail, says CenterSquare Investment Management Senior Vice President Robert Holuba.
His company, along with Arch Street Capital Advisors, acting on behalf of a capital partner, today announced a joint venture targeting investments in high-end service properties in the Sunbelt region of the US.
Service properties is a niche sector of retail that comprises institutional quality, multi-tenant shopping centers leased to businesses whose customers must visit the store to consume the service. It has been given a lot of attention by investors and consumers since COVID-19 began redefining in-person shopping about a year ago.
This growing sector is one that the Philadelphia-based company has had its eyes on and performed well in since 2015. CenterSquare, with $14 billion in global assets, is now focused on opportunities in the US Sunbelt region.
CenterSquare’s joint venture is targeting unanchored properties that are located on well trafficked, highly visible street corners in growing cities in those markets.
“Changing consumer patterns have created meaningful tailwinds behind the growth of the service sector, which is translating into strong fundamentals for essential service retail properties,” Holuba said in prepared remarks. “While much of the retail sector continues to be painted with the same negative brush, we recognize there is a unique window of opportunity to acquire high-performing service property assets at favorable pricing. For these reasons, we continue to view these investment opportunities as some of the most attractive risk-adjusted returns in the market today.”
Supporting the strategy is an acquisition financing facility from Barclays, providing the joint venture the ability to acquire approximately $150 million of properties. Since its formation in July, the joint venture has closed three separate transactions, acquiring four properties in Orlando, Houston and Atlanta. The joint venture is actively seeking new service property investment opportunities in the $7 million to $20 million price range.
In general retail is undergoing somewhat of a reprieve, with the national vacancy rate for neighborhood and community shopping centers declining by 10 basis points in Q2 to end the period at 10.5%, according to Moody’s REIS Analytics. Asking rents remained flat and effective rents rose by 0.1%. Mall vacancies are at a record high of 11.5%, but asking rents also rose by 0.2% in Q2. Moody’s analysts say they expect vacancies to peak at 11.5% and that they will likely remain elevated through 2023.
“However, much like the office sector, the worst of our negative rent growth forecasts will likely not come to pass–given how benign rent declines have generally been, and given brightening economic prospects,” the report notes.