Carlsbad, CA (May 19, 2017)—As the retail sector continues to evolve with large tenant shake-ups and e-commerce pressures, investors are focusing on anchored retail centers, particularly those with grocery tenants, as one positive path for future growth, according to Real Capital Markets’ May 2017 Retail Sentiment Report. Despite recent shifts in consumer buying habits and the negative impact on the retail industry, many investors are cautiously optimistic as they look for investments that tie into the new age of retail.
“Participants in the Real Capital Markets Retail Investment Sentiment Report confirm what largely has been known, that a confluence of events, some that have been years in the making, are having a significant impact on this segment of the commercial real estate market,” said Tina Lichens, Chief Operating Officer, Real Capital Markets.
In May 2017, RCM surveyed its database of retail investors to gauge their sentiment on investing in today’s market, the greatest threats to the industry, the factors most influencing their acquisition decisions and where they see the greatest opportunities. Respondents included principals and brokers from across the country. Highlights of the RCM study include:
Shopping for Anchored Centers—Anchored shopping centers are viewed as the most attractive retail investment opportunity; the category was cited by more than 40 percent of investors. The general sentiment is that anchored centers are a property type that can be more easily underwritten than other property types. “Anchored centers, whether highlighted by a grocery store or another strong big box retailer, remain the category where the majority of investors see the greatest opportunity,” said Steve Shanahan, Executive Managing Director, Real Capital Markets. “Though e-commerce is highly disruptive for so many businesses, grocery stores may be among the least vulnerable.”
Shifting Consumer Buying Habits are Greatest Threats—The overall shifting consumer buying habits was seen as the greatest “threat” by almost 36 percent. That response was followed by the impact of e-commerce and big box vacancy rates. However, according to participants, retail closures do not mean the end of bricks and mortar business as we know it. Some investors suggest that it “may be a good thing” that there is no clear greatest threat because it mandates reinvention.
Retail Environment is Greatest Influence—One third of investors said that the current state of retail is having, and will continue to have, an impact on their acquisition plans. While only 13 percent pointed exclusively to the financial market conditions—interest rates, availability of capital/cash, etc.—as the greatest impact, more than 42 percent said the one-two punch of retail issues and financial market concerns are the “greatest impact on investment position.”
“Some retail property investors are taking a broader look at the impact of e-commerce and other influences as they fine-tune their investment strategies moving forward,” Lichens said. “At the same time, others are choosing to observe how those strategies unfold before making any financial commitments.”
Interest rates don’t motivate—The RCM survey indicates there is little or no correlation between investors characterizing themselves as net buyers and higher trending interest rates. In spite of the prognosis for even further hikes, investors still aren’t motivated to accelerate their acquisition plans in order to lock in rates at what continue to be extremely low rates. According to the survey, almost 63 percent of respondents said interest rate activities will not be the motivating factor.
Investors are Net Buyers—57 percent of respondents classified themselves as net buyers, a level that is three times the next most popular response, “holding to manage what we already have acquired.” Just over 12 percent consider themselves to be in a holding pattern to wait and see how the retail industry and general economic concerns play out in the coming days. Almost 12 percent claimed they are net sellers.
“RCM’s Retail Investor Sentiment Survey shows that investors continue to believe in the value of retail investments, overwhelmingly characterizing themselves as either net buyers or holding to manage what they already own,” said Steve Shanahan, Executive Managing Director, Real Capital Markets. “That tells me that should the right opportunity come along, they won’t hesitate to act quickly and decisively.”
About Real Capital Markets:
Founded in 1999, Real Capital Markets (RCM) is the global marketplace for buying and selling commercial real estate (CRE). RCM increases the speed, exposure, and security of CRE sales through its streamlined online platform. Solutions include integrated property marketing, transaction management, and business intelligence solutions that unify broker-level and firm-level data and work flows.
To date, the Company has executed approximately 50,000 assignments with total consideration in excess of $1.8 trillion. Over 50% of all U.S. commercial assets sold, over $10 million, are brought to market using RCM’s online marketplace annually.
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Click Here to Download: May 2017 RCM Retail Sentiment Study