11 Insights on Retail Real Estate

This spring, NREI conducted its first research survey measuring industry pros’ sentiments on the sector. What we found is that conditions are healthy and there is sentiment for continued improvement. But it’s also difficult to form a cohesive outlook for the sector at large. There are variances by region, asset type and asset quality. On balance, the picture remains rosy, but there are more concerns at the margins than on other property types for which we’ve conducted research this year. Here are 11 charts illustrating sentiments for the sector.

In the Cards

Just under half of respondents expect retail cap rates to rise nationally in the next 12 months. On average, respondents expect cap rates to move up about 10 basis points.

Just Right

Respondents largely are not worried about overdevelopment in the retail sector. Only 11 percent of respondents think too much development is occurring. About three-fifths of respondents think the right amount of development is occurring.

Growth Phase

Almost 70 percent of respondents think the retail sector is in a growth or recovery phase.

Pricing Power

A whopping 77 percent of respondents expect rents to rise and another 21 percent expect them to remain flat. Only 2 percent of respondents expect to see rents decline in their regions. Overall, respondents expect rents to rise about 3 percent.

Balanced Market?

A majority of respondents say its time to buy or hold, but about one-third say its time to sell.

West is the Best

Respondents were asked to rank each of the four regions for retail properties on a scale of 1 to 10. The West led the way followed closely by the East.

Money Flows

Most respondents said that capital is more widely available today than it was 12 months ago.

Stable Rates

Most respondents expect LTV rates to remain flat in the next 12 months. Another 39 percent an increase.

What are Your Terms?

Most respondents (57 percent) expect loan rates to remain unchanged in the next 12 months. About one-third (31 percent) expect them to loosen.

Still the One

Respondents ranked multifamily as the most attractive commercial property type on a scale of 1 to 10. Retail tied with industrial for second place.

Filling Up

In total, 62 percent of respondents expect occupancy rates to rise nationally in the next 12 months. Only 12 percent expect to see a decrease. On balance, respondents expect retail occupancy rates to rise about 13 basis points. They currently estimate occupancy rates in their region at around 89 percent.