NREI Research Series
Part 3: Retail Fundamentals Hold

Part 3: Retail Fundamentals Hold

Retail occupancies and rents have stayed the course in the face of considerable headwinds. Occupancies at neighborhood and community centers have improved by just 1.1 percent over the past five years to reach 90.1 percent in the second quarter, according to research firm Reis. Malls are faring better, with an average national vacancy rate of 92.1 percent and annual rent growth. Both sectors reported modest annual rent growth of 2.0 percent in the second quarter, according to Reis.

The majority of respondents expect occupancies in their respective markets to remain flat or improve slightly over the next year. Overall, 43 percent anticipate no change in occupancies over the next 12 months, while 42 percent expect an increase and 16 percent believe occupancies could decline. Overall, occupancies are expected to increase by an average of 9.7 basis points.

Respondent views on the national retail market are slightly more pessimistic, with 24 percent expecting occupancies to decline. Forty percent expect national occupancies to rise a slight 4.6 basis points, while 35 percent expect no change. When asked about their outlook for average retail rents in their region over the next 12 months, nearly two thirds (67 percent) expect rents to increase, while 24 percent predict no change and 9 percent believe that rents will decline. On average, a 2.0 percent increase is expected.

NewMark Merrill is seeing above average occupancies, at about 95 percent, across its portfolio of community and neighborhood centers. Sigal attributes part of that success to the company’s own use of technology. NewMark Merrill is using analytics to scrutinize sales and be more strategic in its merchandising mix and co-tenancy. The firm has also developed its own apps to help drive customers to its centers. “It’s a mix of finding the right tenants for the right space and then providing marketing to attract customers,” he says.

Construction remains weak in the post-recession environment. During the first half of the year, there was 3.4 million sq. ft. of neighborhood and community centers completed, which is a drop compared to 2014 and 2015, when annual completions for each year exceeded 9 million sq. ft., according to Reis data. Despite the limited supply of new construction, the majority of respondents don’t appear hungry for more. In all, 59 percent of respondents believe that the current development activity is the right amount, while 20 percent think there is too much and only 11 percent think there is too little. Another 10 percent of respondents were unsure.

TAGS: Retail News
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