Clearly, it was the wrong week for me to resume my Atkins diet. Here we are in Las Vegas, attending the mammoth ICSC Spring convention and, as usual, the biggest lines were over in the food franchisors corner. From Einstein's Bagels to Cold Stone Creamery, vendors were dishing up everything but the pure protein I need. Boy, that Cold Stone Creamery ice cream is good. The ice cream chain dished up 7,200 servings of its Oreo cookie ice cream a day, while nearby Haagen-Dazs Shoppe Co. was handing out single servings to a never-ending line of hungry attendees. And Auntie Anne's ran out of pretzels at 4:30 Tuesday.

We wound up walking off those calories in the massive hall, where we took the pulse of the retail real estate business. The consensus among the developers, lenders and brokers we talked to is that this is a much more upbeat time for the industry. While other property types have been hit by rising vacancies and falling rents, retail real estate has held up. People in the grocery-anchored center business were very much the belles of this ball as investors continue to throw money at this sector.

Most executives we talked to said they were seeing more people and making more deals. There is a sense that the shakeout of retailers has ended -- there are no more shoes left to drop.

Still, there is an undercurrent of apprehension. John L. Simon, senior vice president of development at The Taubman Company, joined other execs in pointing out that despite the relatively strong showing of retail real estate this year, the fundamentals continue to be troubling. "We are in an unusual situation," he told Retail Traffic. "Every retail category seems to be weak. The economic situation is more dire than advertised."

Some folks told us that they are finding vacancies rising and space harder to fill. The difference in point of view depends very much on what part of the country you're operating in. Simon, for example, says that his trouble spot is Dallas, where unemployment is a whopping 9.6% and the recently opened Shops at Willow Bend mall in Plano is "grossly underperforming."

We checked in with Marcus & Millichap's Hessam Nadji, who pointed out that Dallas, Phoenix and Atlanta are indeed showing signs of strain. While he is sanguine about an economic recovery, perhaps late this year or early in '04, he says it will be mild. Meanwhile, the momentum in the job market remains negative -- 500,000 of the 2.2 million jobs lost since 2000 were lost in the first few months of this year.

Nadji also thinks that we are seeing the tail end of this boom in retail real estate. Cap rates have fallen as prices have soared and while low interest rates are keeping most operators from getting into trouble, he says that buyers who are paying top dollar for B and C properties could have difficulty generating sufficient returns.

"Everybody agrees that we are in an era of rising risk and lower return," he says. Retail real estate got used to annual returns of as much as 16% during the past three years. He figures that going forward, as the flood of money into the sector ebbs and prices return to normal levels, returns will fall to the high single digits, but that is still very healthy in comparison to other forms of investing.

As usual, however, people running (or limping) around the floor of ICSC were focused on what new products were coming on to the market, who was leasing, what they're paying and what new concepts are in the pipeline. We thought it was interesting to hear from General Growth Properties that it has lured a 45,000-square-foot Harley-Davidson dealership and retail center to anchor its White Mountain Mall in Rock Springs, Wyoming. It opens Saturday.

And here's a trend we spotted: mixing retail with higher education. Roadside Development, working with Madison Retail Group, expects to build 2,200 units of private student housing at its planned University Town Center in Hyattsville, Md., near the University of Maryland College Park Campus to assure foot traffic 24/7.

College students represent a demographic other developers are angling for. Jones Lang LaSalle, for example, is the development manager and retail leasing consultant for South Campus Gateway, a mixed-use development adjacent to Ohio State University. Universities benefit by redeveloping run-down neighborhood surrounding the school and retailers and developers have a captive audience. Jones Lang LaSalle has also helped develop retail projects at the University of Pennsylvania and Georgia Tech.

Related Resources
More from the ICSC 2003 Spring Convention
Retailing Topics in Depth
Development Topics in Depth