The recession took a major toll on the retail real estate sector but, despite waffling consumer confidence, the sector continues to improve. Retail now accounts for 19 percent of total U.S. investment volume year-to-date 2013. Jones Lang LaSalle’s retail experts predict the four key forces that will drive an increase in the retail transaction market during 2014.
1. Strengthening Fundamentals: Greg Maloney, President and CEO, Jones Lang LaSalle Retail
“Total retail investment is expected to increase upwards of 20 percent in 2014, as pent up demand that was not satisfied in 2013 fuels investments and investors look to balance their portfolios. Driven by strengthening fundamentals, the retail market will continue to turn around despite store closings and consolidation. Vacancy rates are projected to inch downward driven by power center popularity while rents are expected to increase albeit slightly for the fourth straight quarter. We expect gains to become more widespread across markets in the coming year.”
2. Retail Portfolios to Hit the Market: Kris Cooper, Managing Director, Capital Markets, Jones Lang LaSalle
"The number of portfolios coming to market, which combine a broad spectrum of B and C retail assets, is expected to increase as REITs continue to dispose of assets in the year ahead. As sellers look to maximize the cycle and their proceeds, putting product on the market in bulk will take advantage of economies of scale; while acquiring small portfolios will allow buyers to immediately expand their footprint in a region. We expect these small portfolio sales to pique the interest of investors looking to deploy capital into value-add assets, with private equity remaining an active buyer in the segment. Institutional investors will still be aggressively looking for single core retail assets around the country.”
3. Liquidity in the Debt Markets: Jimmy Board, Executive Vice President, Real Estate Investment Banking, Jones Lang LaSalle
“Lenders will continue to seek retail opportunities in 2014 to diversify their allocation of funds. We expect investors to take advantage of the liquidity in the capital markets for retail product and readily available debt to facilitate new acquisitions and refinancings that will ultimately increase leveraged returns. Right now it’s primetime for long-term holders of core and stabilized retail assets to secure fixed-rate financing and lock in today’s historically low rates. Borrowers will continue to take advantage of floating-rate debt for redevelopment of transitional assets in core to secondary plus locations.”
4. Improvements Pay Dividends: Kristin Mueller, Chief Operating Officer, Jones Lang LaSalle Retail
“Improved operating performance and consumer demand for physical points of sale are pushing retail owners to invest into existing assets, giving properties a long-overdue makeover. Investors that execute stalled expansions and renovations can profit tremendously from the market’s upswing and ability to re-tenant vacant space. The much-needed injection of capital will benefit investors who plan to go to market before 2020 with updated product, as they’ll capitalize on the constricted new development pipeline, increased property values and stabilized rent rolls.”
Jones Lang LaSalle’s Retail Group is a full-service provider of retail services nationwide. The firm offers a wide array of services to its clients, including brokerage services for landlords and tenants, property management, financial reporting, tenant coordination, specialty leasing, marketing, research, development and receivership services. During the last two years, Jones Lang LaSalle’s Retail Group has added more than 50 retail brokerage experts in major markets including Atlanta, Boston, Charlotte, Chicago, Dallas, Florida, Hawaii, New York, Seattle and Southern California. During the first half 2013, the group added more than 60 new assignments and more than 30 retail clients to its network across the United States.
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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.7 billion of real estate assets under management. For further information, visit www.jll.com.