U.S. retail sector will not reach its historical average vacancy level before mid-2013, reports Cassidy Turley; Class A centers will see slight rent growth this year, with Class B and C centers lagging
May 23, 2011
– Net demand for retail space has been trending up since July 2010, yet the U.S. retail sector will not reach historical average vacancy before mid-2013, according to Kevin Thorpe, Chief Economist at Cassidy Turley, a leading commercial real estate services provider in the U.S. According to Cassidy Turley's May 2011 Insights: Retail Outlook, Class A centers will rebound with slight rent growth this year in most metropolitan areas, while most Class B and C centers in secondary and tertiary markets will continue to lag. For the next two years, it will continue to be a story of haves and have-nots.
"The good news is that unlike the previous three years, the positive momentum we are observing in the retail sector easily exceeds the downside risks, giving us greater confidence that the recovery will continue to strengthen," said Kevin Thorpe, Chief Economist, Cassidy Turley.
Cassidy Turley issued its May 2011 Insights: Retail Outlook at the International Council of Shopping Centers (ICSC) RECon 2011 conference, May 22-25, at the Las Vegas Convention Center. Copies of the May 2011 Insights: Retail Outlook and other Cassidy Turley research are available at Cassidy Turley's booth (#C187 L St) in the Central Hall.
Following are excerpts from Cassidy Turley's May 2011 Insights: Retail Outlook:
U.S. Retail Conditions
"Net demand for retail space has been trending up since July of last year, and vacancy has stabilized at 10.9%. The upside is that consumers are spending again and labor markets are clearly strengthening. The downside is that the slow housing recovery is delaying the retail sector recovery."
"Retail vacancy in top tier regional markets hit bottom in 2010 and many Class A centers are reporting rent growth in 2011, while secondary and tertiary markets are still facing anemic demand."
Retail Sales Slow, but Still Growing
"According to the latest Census Bureau data, retail sales slowed in April. Excluding autos and gas, core sales grew only 0.2% -- the lowest reading since December of 2010. Despite the slowdown in April's retail sales figures, consumer spending remains mostly healthy when compared to the previous year. Even after a down month, sales were 7.6% above year-ago levels."
Retail Sector Outlook
"In the first quarter of 2011, there was 220.5 million square feet of empty retail space in the U.S. Assuming historical levels of demand from this point forward, the retail sector will not reach historical average vacancy before mid-2013."
Housing & Unemployment
While existing home sales -- which account for more than 80% of all home sales -- have generally been trending up since July of 2010, home values continue to fall in most markets. Until home prices stabilize, there will be an ongoing negative wealth effect which will weigh negatively on confidence, lending, and consumer spending. Nevertheless, the trend in home sales is encouraging, and after five years of steady declines, home prices will finally stabilize in most markets in 2012. With respect to unemployment and its impact on consumer spending, given that the U.S. employment situation is strengthening -- over the last three months (Feb-Apr 2011) the private sector has added 600,000 new jobs -- unemployment should continue to recede in most markets by the end of 2012."
Economic Recovery Outlook
"At this stage, the odds remain favorable that the economic recovery will continue to strengthen. Many things continue to right: corporate profits remain hefty, credit is flowing, household balance sheets are healthier, the DOW is just 9% from its pre-recession peak, and exporting is back to pre-recession levels. This is not to imply that there aren't still significant risks, particularly from overseas -- the disaster in Japan, the turmoil in the Middle East and North Africa, the European Sovereign debt crisis, all of which pose large downside risks to the U.S. recovery."
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with 3,000 professionals in 60 offices nationwide. The company represents a wide range of clients -- from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $17 billion in 2010, manages 430 million square feet on behalf of private, institutional and corporate clients and supports over 25,000 domestic corporate services locations. Cassidy Turley serves owners, investors and occupiers with a full spectrum of integrated commercial real estate services -- including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. In 2010, the firm enhanced its global service delivery outside of North America through its partnership with GVA. Please visit www.cassidyturley.com for more information about Cassidy Turley.