Skip Ribbon Commands
Skip to main content

News release


Predicted Retail Recovery Faces Significant Economic Hurdles According to Jones Lang LaSalle Report

Firm’s Late Summer North America Retail Outlook reveals that despite currently favorable retail statistics, dwindling investor, consumer confidence levels may impact future growth

ATLANTA, Sept. 7 2011 — Though the latest retail statistics point towards a retail sector that is gradually moving towards recovery, lack of hiring gains in recent months, an inert housing market and waning investor and consumer confidence in response to the debt ceiling crisis and stock market volatility all threaten to stifle prosperity and capital markets activity in 2011 and beyond, according to Jones Lang LaSalle’s Late Summer North America Retail Outlook.

Until economic indicators improve and hiring increases, consumers will continue to moderate their spending. Despite outsized corporate profits, businesses are still playing a waiting game, but business confidence is showing signs of improvement which could translate into more job creation. Nonetheless, retailers can leverage many opportunities in the market including competitive lease rates, enhanced e-commerce and m-commerce technology and investment opportunities abroad.
Retail outlook highlights
  • Investment sales volume of significant retail properties totaled an impressive $15.2 billion in the second quarter of 2011, though largely due to the Blackstone/Centro transaction. This is significantly higher than last quarter’s total of $5.8 billion and 337 percent higher than the same period in 2010. 
  • The national retail vacancy level did not change from last quarter’s 7.1 percent, though it has posted a year-over-year drop of an impressive 30 basis points. 
  • Rents have still not reached a bottom yet, although the decline is slowing and some markets are showing quarter-over-quarter increases. National rent decreased by 0.7 percent since the last quarter to $14.74, a 2.4 percent year-over-year drop.
  • All of the 18 regional markets that Jones Lang LaSalle tracks are currently tenant-favorable and most are likely to remain that way for the next quarter or two.
“Despite the strong showing of the first half of 2011, weakening economic fundamentals predict a slowdown in capital markets during the latter part of the year,” said Greg Maloney, CEO and President, Jones Lang LaSalle Retail. “Consumer and investor confidence will remain low as long as uncertainty regarding global debt issues and other economic issues remain unresolved, resulting in continued sluggish retail sales that do not reach 2010 levels.”
Investment sales volume jumps by 337 percent from year-ago levels
Investment sales volume of significant retail properties skyrocketed to $15.2 billion in the second quarter of 2011 – up a staggering 337 percent from the same period in 2010, largely due to the Blackstone/Centro deal. Excluding the $9.2 billion deal, retail’s year-over-year gain was still a respectable 75 percent for strip centers and 66 percent for malls and other subtypes. Per-square-foot prices dropped minimally from $167 to $146 quarter over quarter, while cap rates have basically remained the same, ending the second quarter at 7.7 percent, continuing to hover around their lowest level since 1980.

During the first half of 2011, core and Class A retail property cap rates have declined quickly, with distressed properties receiving some attention. However, this trend is changing, with definite valuation issues with middle-of-the-road retail products. Cap rates will continue to Late Summer only for core properties, and perhaps at a slightly diminished pace to that seen earlier this year.

Trophy Class A malls and grocery-anchored strip centers continue to garner exceptional market interest. In fact, though primarily due to the Blackstone/Centro deal, more strip centers were traded in the second quarter of 2011 than for the entire 12 months of 2010. 

New additions to the distressed market continue to dwindle, with only $1.6 billion added in the second quarter, the lowest level since the third quarter of 2008.   Most experts believe the retail sector is now 50 percent out of its distress pool, with more than $1 billion in sales transactions executed for distressed properties within the last two quarters.

Not all regions are experiencing the same levels of investment sales activity.  The Southeast region led retail property sales for the first half of the year, with just under $4.9 billion.  The West was second with $4.46 billion in transactions, followed by the Midwest ($4.11b), Mid-Atlantic ($3.03b), Southwest ($2.71b), and Mid-Atlantic ($2.05).

 “An accurate leading economic indicator for this slowdown is that hotels are seeing occupancies drop recently, leading most to conclude that 2012 will be another year of high hopes with little recovery if the market continues its current course,” said Maloney. “2012 will be another year of high hopes with little recovery; growth in the retail sector remaining static for the next 12-18 months or unless there are at least nine uninterrupted months of economic growth domestically, which we haven’t seen since 2007.”

Market amelioration continues as demand gradually heats up
Net absorption has been positive for the past eight quarters, with nearly 62 million square feet absorbed over the last four. This relatively solid absorption, coupled with the anemic new delivery level of just over 37.3 million square feet over the last four quarters, is generating a gradual amelioration in the retail leasing market.

Overall national retail vacancy levels have not changed from last quarter’s level of 7.1 percent, though they have registered a year-over-year drop of an impressive 30 basis points. Malls and general retail (single-tenant freestanding general purpose commercial buildings) both posted a small drop in vacancy to 5.8 percent (from last quarter’s 5.6 percent) and 4.8 percent (from last quarter’s 4.9 percent), respectively. Though power centers did not register a drop in vacancy since last quarter’s level of 6.8 percent, they have showed a marked decrease in vacancy over the last 12 months (60 basis points) as many expansion-mode tenants are seizing upon the competitive prices of prime vacant space left behind by several big box retailers – such as Borders.

Among the markets tracked, Boston and Washington D.C. reported the most positive absorption in the second quarter of 2011 with 870,188 and 822,229 square feet, respectively. Conversely, Atlanta had the most negative net absorption of an astounding 726,174 square feet, due to its continued struggle in rebounding from the deep recession. 
Interestingly, Chicago, a market that had posted absorption of more than one million square feet last quarter, registered a 326,314-square-foot negative absorption. 

One optimistic indicator for the retail sector is that expansion continues to gain momentum, with current growth plans – at 72,167 stores – up by 10.5 percent from the same time last year. Urban expansion, in particular, has seen tremendous growth. Waning store closings also point towards recovery as store closure announcements fell 36 percent from 2,800 a year ago to just under 1,800 in the last quarter. 

Smaller footprints boost some retailers’ bottom line
Though store closings are decreasing, it is interesting to note that the total square footage of space to be closed has actually increased to approximately 31 percent last quarter (or 0.2 percent of total U.S. retail space). This points towards the growing trend of retailers downsizing their store footprints in favor of smaller, more efficient locations to boost sales-per-square-foot metrics.  Some high-profile examples include:
  • Walmart – After experimenting with their Neighborhood Market concept, the retailer is now aiming to effectively compete against dollar stores with its 15,000-square-foot Walmart Express concept. At one-tenth the size of a regular store, Express stores will focus on offering convenience items such as milk, eggs, and produce. Walmart will be rolling out this concept in many urban core markets, that cannot support a full-sized store.
  • Best Buy – In response to weaker sales and greater competition from online retailers like, the retailer plans to sublease some of its space to smaller retailers such as beauty-supply stores, grocers, and home furnishings outlets. Through this, Best Buy aims to pare down its average store size from 45,000 to 36,000 square feet. Prospective tenants include the likes of Trader Joe’s and Sephora.
Retail gold rush: the pull of the Great White North
As U.S. recovery remains anemic, U.S. retailers are looking north towards Canada due to its strong fundamentals of lower unemployment, faster growing GDB, strong currency and a healthy housing market. Despite Canada’s higher real estate costs, major U.S. retailers such as Whole Foods, J. Crew, Cabela’s, and Macy’s are entering the market aggressively, some mitigating the higher costs by acquiring existing chains. 

“Canada isn’t the only foreign market vying for the investment dollars of U.S. retailers in light of subpar growth prospects locally,” said Joe Brady, Managing Director, Corporate Retail Solutions. “Savvy retailers with transferable concepts continue to look to overseas markets for expansion opportunities with continued emphasis in China, Brazil and Europe.”

The iPad retail revolution
Beyond the volatile economy, technology will probably have the most important implications for the retail industry. E-commerce in the U.S. increased 12 percent in the first quarter of 2011 over the year-ago level with total revenue of $38 billion. This growth was almost double that of physical store sales, as gas price increases reduce the amount of store trips and customers seek out better deals online.
Mobile commerce, or m-commerce, has grown 25 percent in the last six months, by far the fastest growing channel.
According to Forrester Research, revenue from m-commerce is expected to hit $10 billion annually by the end of 2012, and $31 billion annually by the end of 2016. Despite this high projected growth rate, m-commerce still makes up a small percentage of total sales - estimated at only two percent for this year. However, by 2016, this percentage is expected to rise to seven percent.

Mobile shopping behavior encompasses much more than the actual purchase itself, with consumers using their mobile phones or Apple iPads to look up product information and pricing while within a bricks and mortar store.

 “Though m-commerce empowers the consumer to compare prices instantaneously and demand price matches, retailers also benefit,” said Julie Rickey, Director of Consumer Marketing at Jones Lang LaSalle. “They can now save money previously spent on printing and mailing expensive catalogs while showcasing their products through a more robust and interactive media and leveraging social media to drive the brand experience online and in-store.”
Through the looking glass: 2011 and beyond
Employment and fuel prices will be the most critical determinants of the retail sector’s health for the remainder of the year. Generally, consumers have moderated spending in recent months in response to high gas prices, driving sales increases at discounters such as Costco. While the most recent employment report was promising, market conditions are driving reductions in disposable income and consumer confidence, and generating increased price sensitivity for all but the highest income consumers who continue to bolster luxury sales. All of these signs are pointing to a slowdown in retail sales for the rest of the year.

“We continue in the "dollar economy" with discount retailers like Dollar Tree, Family Dollar, Dollar General continuing to report strong sales as the strapped middle class trade down,” said Lew Kornberg, Managing Director, Corporate Retail Solutions. “Luxury, which heretofore was buoyed by high stock market valuations, will have a tough second half of 2011 as macroeconomic factors appear to be tilting toward another recession.”

The economic turnaround predicted by most experts for the latter part of 2011 is simply not materializing, and there remain considerable hurdles to jump as recovery limps along at an uneven, unpredictable pace. Recent stock market jitters regarding the S&P downgrade and European market instability, coupled with a seemingly constant barrage of negative global events, may make a significant dent in retail performance in the coming months. All eyes will closely watch changes in all of these factors as an augur of what to expect in 2012.
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $2.9 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $45.3 billion of assets under management. For further information, please visit our website,