As ICSC held its annual New York National Conference and Dealmaking on Dec. 3 and 4, show attendees reported they felt optimistic about retail investment sales and leasing prospects for 2013, though nobody expected a huge uptick in business.
In the fourth quarter, tenant demand for well-located properties remains strong, according to Michael Glimcher, chairman and CEO of mall REIT Glimcher Realty Trust. He noted that when it comes to class-A space, landlords have gained back the upper hand. This is particularly true in big Northeast cities.
“So many appointments showing spaces this week...” said Robert K. Futterman, president and CEO of Robert K. Futterman & Associates, a retail brokerage firm with offices in New York, Chicago, Los Angeles, San Francisco, Los Angeles and Miami. The ICSC show is a “last ditch efforts for tenants to get into the city and look at spaces to open in the spring or further down the road.”
Michael S. Salove, president and CEO of MSC, a real estate services firm that’s active in Pennsylvania, Delaware and Southern New Jersey, reported that a similar phenomenon is taking place in Philadelphia. Retail vacancy in the city core is virtually non-existent and leasing velocity is also strong in the older suburbs immediately surrounding the city.
Salove added, however, that tenant demand drops off significantly when it comes to the further-flung suburbs, especially for space at power centers.
“There’s certainly at this point a widely accepted notion that urban markets are where everyone wants to be,” he said. “Everyone is working on [urban] concepts.”
Going forward, the retail sector should continue to see a recovery in leasing fundamentals, according to John Bemis, the retail market lead for the Atlanta office of Jones Lang LaSalle. But improvements in space absorption and rental rates will be slow and measured, similar to what the industry experienced in 2012.
Interesting times
There was also an air of uncertainty surrounding the show as everyone wondered how new government policies might affect the commercial real estate sector; in particular, investment sales.
“I am seeing a lot of intelligence [traded around] at the conference. Not so much the deals, but ‘What do you think is going to happen in 2013?’” said David Wojciechowski, managing director of capital markets with Jones Lang LaSalle.
Changes in capital gains tax regulations might significantly curtail activity for some real estate investors, although institutional buyers and foreign firms, especially Canadian and Israeli-based companies, should remain active in the marketplace.
“I think the core assets will largely be unaffected by capital gains tax, and core product in the suburbs will also be unaffected,” noted Salove. “Everything else it will be a big issue.”
And when it comes to larger economic challenges—job growth, the resolution of the fiscal cliff, etc.—Michael Glimcher said that he was optimistic about Washington’s willingness to work on resolving them.
“Hopefully now that the president is in the second term he’ll want to move more to the middle,” he offered.