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Discount retailers’ aggressive expansion plans are bolstered by consumers appeal to value
ATLANTA, Feb. 14, 2013 - The retail landscape in the year ahead remains varied with distinct high and low features. According to Jones Lang LaSalle’s Retail Group, bright spots will be the food and beverage industry, and select markets with strong population growth and job creation. Looming clouds will come from consumer pushback, as they adjust to lowered paychecks due to the payroll tax cuts, or the increase in income taxes; however, creative marketing strategies initiated by retailers to drive sales will soften the blow.
“The last year paved the way for a successful 2013, however higher taxes will cause retailers to compete for lower disposable income dollars. The theme for both retailers and retail owners will be flexibility and nimbleness. Those who adapt to technology and mobile advancements, yet keep traditional methods in check will be poised to capitalize on the steadily recovering market,” said Greg Maloney, President of Jones Lang LaSalle’s Retail Group.
When one door closes, another opensThe internet’s fundamental change on the retail environment has tempered traditional bricks and mortar retail operations; however, those who are posting strong same-store sales growth are unlikely to cut back their physical presence. Retailers plan to open a total of approximately 82,000 stores, with the restaurant industry poised to sustain the expansion, according to RBC Capital Markets, Retail REITs: National Retailer Demand Monthly report.[i]
“We expect low growth of new supply during the next year. As in the recent past, some retailers won’t be as lucky as others. Book and electronic stores, in particular, will continue to have a rough road ahead and are likely to reduce their space size and portfolio footprint,” said Lew Kornberg, Executive Vice President and National Practice Lead of Jones Lang LaSalle’s Retail Tenant Representation Group. “Food and beverage/restaurant openings will account for more than 54 percent of new store deliveries in the next twelve months, driving the need for these retailers to evolve and differentiate their value proposition. The retailers that figure out how to best meet the current and future needs of consumers will remain relevant.”
A penny saved, is a penny earnedContinued uncertainty in fiscal policy, coupled with the elevated payroll tax will make a noticeable impact on consumer confidence and spending in the year ahead. Retail industry sales in 2013 will increase 3.4 percent, slightly less than the preliminary 4.2 percent growth seen in 2012, according to the National Retail Federation.
“It’s not a stretch to predict that cash-strapped consumers will tighten their purse strings as they feel the effects of smaller paychecks. However, herein lies the opportunity for the best value retailers, which are in pole position to capitalize on their ‘more for less’ mottos,” said Kornberg. “Stores like Dollar General (DG), that posted positive growth, have ambitious expansion plans in the retail universe right now. Its planned addition of 635 new stores and 550 relocations or remodels is a true testament that in a protracted soft market there remain opportunities for certain retailers to continue to grow their brand and expand their physical presence.”
Sales! Sales! Sales!Retail cap rates decreased nearly 25 points in 2012, leading to $52.8 billion of assets trading hands. The market witnessed a 20 percent increase in transaction volume in 2012 over the prior year period, teeing-up retail investment sales in 2013 to gain even further traction in the year ahead. A significant amount of product is already on the market, creating an atypical first half of 2013 robust with potential trades.
“There will be no shortage of product on the market this year. REITs will continue to divest non-core assets from their portfolios and private equity funds that are flush with capital will look to secondary markets to capitalize on strong yields,” said Margaret Caldwell, Managing Director of Jones Lang LaSalle’s Retail Capital Markets Group. “Private equity funds will be the frontrunners for acquisitions of retail properties in non-gateway markets, whereas, REITs will continue to grab core trophy assets at low cap rates. We also expect that REITs will continue to redeploy more capital from property dispositions into redevelopments driving improvement in store sales and increasing their NOI. There is going to be fierce competition in the marketplace as multiple bidders will be vying for performing assets.”
Coast to Coast Door BustersVirtually all markets are expected to see rent growth in the year ahead, as promising demographics will continue to be a harbinger. The markets that experienced the worst fallouts from the housing bust are showing the strongest rent growths in the nation.
Jones Lang LaSalle Retail is a full-service provider of retail services nationwide. The firm offers a full array of services to its clients, including brokerage services for landlords and tenants, property management, financial reporting, tenant coordination, specialty leasing, marketing, research, development and receivership services. For more information on Jones Lang LaSalle Retail, visit www.jllretail.com.
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About Jones Lang LaSalleJones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet. Its investment management business, LaSalle Investment Management, has $47.0 billion of real estate assets under management. For further information, visit www.jll.com
i Excluding automobiles, gas stations and restaurants
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