Cautious Optimism:
Long-term buy opportunities in retail sector.
According to CBRE data, retail real estate metrics remain positive in early 2018. So much so that attractive long-term buy opportunities can still be found in the retail sector, despite the rise of eCommerce.
CBRE Q1 2018 U.S. Retail Figures:
- Retail sales showed healthy growth after a brief post-holiday lag
- Both net absorption and asking rents increased
- New supply is limited, which may signal redevelopment opportunities
- The gap between prime and non-prime assets continues to grow, with prime assets in strong demand and a decline in Class B and lower asset availability
- Low unemployment rates, strong consumer sentiment and recent tax reform indicate a positive outlook for the remainder of 2018
CoStar data also indicates moderate growth in the retail sector, reporting that the U.S. retail index rose 2.2% in Q1 2018 and 7.5% over the past 12 months.
Contrary to recent reports, the sky is not falling.
In a recent article in National Real Estate Investor, Spencer Levy, head of Americas research at CBRE states:
“Most retail that’s owned by public REITs is not going to be put into oblivion by e-commerce; REITs have been shedding some of their second-tier, less internet-resistant assets for a long time. They tend to have better assets in these REITs that are grocery-anchored and/or are in strong demographic locations … I think that the attractive buying opportunities from a capital markets perspective are in the retail REIT space, in large part because there’s been a tremendous overreaction to the encroachment of the internet.”
The retail sector is being reimagined in real time.
Without a doubt, e-commerce is a disruptor, and the recent wave of big box bankruptcies and department store closures has been dramatic; but these changes don’t mark the death of retail — they signal its evolution. There are a number of positive indicators for the future of retail real estate, including:
- Omni-channel retail distribution methodologies
- The rise of the buy local act global consumer movement
- Digitally native retailers opening brick-and-mortar stores
- Optimization of store footprints for better consumer experiences
- Food and beverage and experiential retail segment growth
Thinking about jumping into retail’s choppy waters?
For patient investors, overreaction and fear in the market could signal opportunity for strategic retail buys. However great the opportunity, resist the urge to rush into any deals without first mitigating your risk.
Let an experienced professional help.
Comprehensive pre-acquisition due diligence can be the difference between a profitable deal and a costly mistake. It’s important to make sure your due diligence advisor first understands your investment objectives, so they can best outline a strategic plan to access, evaluate and verify all necessary documents, records and financials to check for any red flags before you ink the deal.
Our advice: Proceed with cautious optimism, because no one likes post-transactional surprises.
SOURCES:
https://www.cbre.us/research-and-reports/Q1-2018-US-Retail-Figures
http://www.nreionline.com/reits/cbre-s-head-americas-research-offers-contrarian-view-retail-reits
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