Reasons to Invest in the Retail Sector
There are many reasons to invest in the retail sector of commercial real estate. From anchored shopping centers, high ROI and quick growth, the retail sector can be a profitable investment. As 2017 continues on, we are seeing even more reasons to invest in this asset class.
The retail real estate market, having long been the most segmented and divided sector of commercial real estate, was the most uniquely impacted in the last downturn and recovery. Grocery anchored neighborhood centers and free standing national credit retail properties have performed exceedingly well while regional malls, power centers, and non-anchored neighborhood strip centers have lagged in terms of price and rents. The slow economic recovery and ever growing share of e-commerce has made investment in retail real estate less desirable to sectors like multifamily and office. However, with this trend most likely changing in the next few years, retail may be one of the best investment opportunities for 2017. Here are three reasons this could be the case.
First, the economy may have now turned the corner and reentered a faster growth phase. GDP was last estimated to be growing at an annualized rate of 3.2% and unemployment has fallen to 4.6%. Retail sales continues to set new all-time records almost every month with annualized growth rates routinely near 3% according to the Census Bureau. As more people work due to the growing economy, they will have more money to spend. In fact, measures of consumer confidence, median household income, and total personal income have all shown strong growth and improvement in the last several months causing some to forecast yet another record breaking year for holiday sales. Regardless of online shopping, people are spending more at all types of retail establishments. Given that there has been a relatively low rate of new retail construction, it is almost unavoidable for retail rents and occupancies to rise resulting in the rising profitability of retail real estate investors. This rate of rent and occupancy growth may be the fastest of all property sectors in 2017 (at least for some markets).
Second, the retail landscape appears better equipped to compete in the new “digital” sales marketplace. Traditional retail tenants are now embracing an “omnichannel” approach, meaning dual focus on in-store and online sales, and recent research by the International Council of Shopping Centers (ICSC) indicates it is starting to show success. According to ICSC, 80% of Black Friday/Thanksgiving weekend shoppers made purchases at physical stores and 28% of those who purchased goods online opted to pick up the orders at a physical store (i.e. “site-to-store”) where 64% of those shopper made additional in-store purchases…