Four Signs Retail is on the Rise
You might still be nursing your RECon hangover (take an Alka-Seltzer and hit the sauna), but we have the latest Q2 retail stats from Marcus & Millichap. Here are four signs it's on the rise:
1. Soaring Fundamentals
"Demand is strong and we have the wind at our backs right now," says Marcus & Millichap senior associate George Ghattas. Vacancy rates for the Chicago metro will fall 50 bps this year to 12.2% after rising 30 bps in 2012, the report predicts. Asking rents for shopping center space will close out the year at about $14.40/SF, up 0.4% year over year. Debt is plentiful but development remains limited, with 647k SF coming online (up from 390k SF last year), most of which is pre-leased. Suburban centers still lag, but the best-located are starting to attract expanding home goods retailers. (Bring on the lamps!)
2. Cap Rate Squeeze
"We're having trouble bringing enough quality product to market to really satisfy buyer demand right now," George tells us. Especially net-lease buildings, as retailer expansion is still slow from the downturn. The result: cap rates on fresh high-credit deals are nearing all-time lows. (Think low to mid 4% for corporate-owned McDonald's and sub-5% for Chase Banks.) These reduced returns have sent buyers farther afield into well-leased strip centers trading between 6.25% to 7.75% and fringe markets in Kane, Will, and Lake counties.
3. Dollar Bills
Metrowide employment will rise 1.4% this year (63,200 new jobs), with payrolls up 1.7% last year. (Complaints about work will also rise.) Affluent employees in professional and business services posts are flocking into the city now that their paychecks are back up, evidenced by the 3,300-plus luxury units being delivered this year. And infill retail will be the beneficiary when they decide to spend. What will they need most?
4. A Grocery Store On Every Corner
Mariano's, which will anchor a new shopping center in Oak Lawn (and is eying Bronzeville), made a "big splash" in the Chicago market, George says. But Walmart Neighborhood Market is equally aggressive, planning a new site and 47th and Cottage Grove and reportedly looking into a supercenter at 39th and State. With old standbys like Jewel and Dominicks and smaller grocery concepts looking to break into the Chicago market, it's hard to tell who'll win this cage match. (Probably whoever has the best guava.)
