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Retail transaction volumes reach $22.2B in Q1 2015; JLL anticipates a 15 percent increase in retail investment volume in 2015
LAS VEGAS, May 18, 2015 – Investors heading to the International Council of Shopping Centers (ICSC) conference in Las Vegas today face two divergent roads of retail commercial real estate opportunities: safe and sound or risky but rewarding. Retail property buyers are lured by steady and consistent returns found in grocery-anchored strip centers, urban high-street storefronts and trophy A malls. However, a tightened supply pipeline is pushing investors to move out on the risk spectrum and into new geographies that expand their definition of what constitutes “core.”
Retail transaction volumes in the first quarter of 2015 notched up 10.5 percent from the same period last year, to $22.2 billion, according to JLL retail research. JLL predicts full-year retail investment trades to rise 15 percent over 2014 levels.
“Retail transactions have summited to new heights following the extreme lows post-recession. In 2015, we’re optimistic for a strong but steady year with a 15 percent uptick in trades,” said Kris Cooper, Managing Director at JLL. “We’re seeing investors buy at higher premiums and venture into different markets in the pursuit of yield. Retail investors’ acquisition strategies are being driven by limited supply and high demand. It’s that simple.”
Safe, Sound – and on the StreetProperties with proven, successful track records, like malls and grocery-anchored assets, remain the top-targeted retail product by investors. Mall sales are up significantly, driven by REITs trading their non-core shopping centers to private funds; while at the same time purchasing stakes in trophy assets. In the first quarter of 2015, REITs accounted for more than one third of total traded retail product, according to JLL research. Private investors continue to place their confidence and capital in anchored shopping centers, which accounted for nearly 70 percent of their purchases in the first quarter.
High-street/urban retail is also capturing investors’ attention in major U.S. markets. These street-facing storefronts may be a pricey purchase (clocking in at an average of more than $1,400 per square foot in the first quarter), but they offer what every investor wants: stability. This product type also offers longer lease terms, allowing landlords a better refinancing window, a guaranteed rent-roll, and plenty of foot traffic. While markets always fluctuate, the general trend shows retail REITs and foreign investors increasing their investment appetite for urban storefronts particularly in New York, Los Angeles, San Francisco and Miami.
“The majority of the world’s retail has operated as a street scape and now the U.S. investment community is jumping on the bandwagon. Urban retail was once dominated by local ownership, but now we’re seeing a consolidation of ownership as the largest retail property owners are claiming their stake,” said Michael Hirschfield, Executive Vice President for JLL. “A flight to the urban core by millennials and boomers is making urban retail portfolios the new suburban trophy mall. As long as the buyer understands that rental assumptions are aligned with market conditions, urban retail acquisitions are proving to be a sound strategy.”
Risk, Reward and (Re)Emerging MarketsInvestors fled from markets like Atlanta, Raleigh, Charlotte, Nashville and Orlando following the recession; however, these markets have re-emerged in the last couple of years as top spots for retail product. Institutional quality assets in these markets are garnering significant interest, as limited supply and higher cap rates monopolize the gateway cities. If the surrounding demographics particularly income are strong, it can be a win for investors sitting on cash. Expect investors to aggressively pursue assets in secondary markets in the back half of 2015, a trend JLL predicts will continue over the next several years.
Borrow and Brighten Your Center Liquidity in the debt capital markets continues to be fueled by historically low interest rates, which are anticipated to remain low for the next eight to 12 months. While this is tightening cap rates and ultimately increasing value, life companies, CMBS, banks, pension funds and debt funds are still eager to provide capital on retail product nationally. JLL is seeing typical loan-to-value ratios of 65 to 85 percent, but there have been several groups looking to hold the mezzanine and preferred equity piece up to 85 to 90 percent leverage.
“Capital is more widely available than even a year ago,” said Jimmy Board, Managing Director at JLL who advises owners/investors to consider implementing capital improvement projects and renovations. “A simple modernized upgrade to soft seating, play areas, the center court, exterior aesthetics and façade improvements – or parking lot restriping and lighting updates – are quick-win value enhancers for your center. Now is the time to upgrade your space and make the most of the low cost of capital.”
JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2014 alone, JLL Capital Markets completed $118 billion in investment sale and debt and equity transactions globally. The firm’s Capital Markets team comprises more than 1,700 specialists, operating all over the globe.
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About JLLJLL (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 fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $55.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.
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