This quarter retail investment posted the most significant year-over-year gains of any asset type, according to Colliers. At $18.6 billion, it is clear that portfolio sales are making a comeback with these properties. Colliers points to two prominent deals as illustration: In the largest, EDENS purchased an eight-property portfolio along the West Coast, totaling 1.2 million square feet, for an estimated $577 million. There was also the Necessity Retail REIT’s 45-property portfolio acquisition, which included 3.4 million square feet of retail.
But will this strong run for retail continue? This week the stock market was upended by earnings reports from retailers that showed a retrenchment in spending by the consumer. The Colliers report, written before this week’s events occurred, does note that recent surveys suggest that consumers begin pulling back on discretionary spending, which “could weigh on retail store performance, at least in the near term, and bears watching.”
However, inflation is expected to ease as the year progresses, it also noted, “suggesting that investors will not, and should not, overreact. Retail is bouncing back from a fundamentals standpoint, and retailers that have survived the past two years have shown their ability to adapt and pivot in the face of challenges.”
Beyond inflation, the sector may be facing other challenges in the mid-term. Baker Katz Principal Jason Baker tells GlobeSt.com that he’s noticed a number of proposed retail projects being put on hold until developers can get a better feel for what construction costs are really going to be in future. “Unless material costs come down, you’ll see less retail construction across the US in the next two years.”
Certain cities have a stronger pipeline than others, of course. In Houston, for example, there is 3.9 million square feet of retail development underway, according to Colliers, which is the most of any US city. Miami follows with 3.5 million square feet and Atlanta rounds out the top five cities with 1.9 million square feet.
However in the near term, retailers who are interested in expanding into existing or new markets will have a difficult time finding quality space, Baker says. “I think the tight market margins for retail space are going to be a pressure point for the next few years.”