6 Fast Facts About Retail That Dispel The Myth That The Sector Is Struggling
While the retail industry experiences growing pains during this seismic shift in favor of e-commerce, not all retail real estate is struggling. These six facts signal continued strength in the sector during its evolution.
1. National Retail Rents Reached A Nine-Year High In Q1
Nationwide retail rents grew to rates not experienced since 2008 in the first quarter, marking the 13th consecutive quarter of positive year-over-year rent growth, CBRE reported in its Q1 Marketview Snapshot. Net asking rents averaged $16.97/SF nationally in Q1, a 6% increase from the year-ago quarter. Retail growth increased across all segments, including the lifestyle and mall segment that has been facing major headwinds. The segment recorded rent increases of $23.76/SF, a 28% increase compared to Q1 2016.
2. Major Retail Brands Are Still Expanding
With 300-plus retailers having filed bankruptcy already this year and store closure levels expected to jump 25% this year to at least 5,000 closed units, according to Cushman & Wakefield, it is easy to get an eerie picture of the industry.
But not all segments of retail are faring the same, and there are still many retailers growing their footprints. Dollar General has plans to expand by 1,000 locations this year alone, including 150 to 160 small-format stores. TJ Maxx announced plans to open almost 200 new stores in 2017, and German discount grocer Aldi has raised its U.S. expansion plans with a $5B investment to open an additional 900 locations in the next five years. Other companies with 2017 expansion plans include: Ulta (100 stores), Ross (90), Dick’s Sporting Goods (60), Burlington (25), Costco (15), Nordstrom (16) and Target (14), according to CBRE research.
3. U.S. Retailers Are Leading The Pack In International Expansion
Though the global retail industry’s international expansion slowed 3.1% in 2016 compared to the previous year, U.S.-based retailers led the way in international expansion last year. In surveying 166 cities in 51 countries, CBRE found U.S. retailers remain the most active when it comes to international expansion, thanks in part to the strength of the dollar compared to other currency. Twenty-one percent of all city-level expansion tracked by CBRE was made by U.S. retailers, followed by 12% by Italian retailers and 11% by French retailers.
“U.S. retailers’ expansion abroad is aided significantly by their strong brands and execution, especially for food and beverage operators,” Brandon Famous, CBRE senior managing director and retail leader of the Americas, said in a statement. “The U.S. retail market is relatively mature and somewhat crowded, so several American retailers instead are targeting Europe, Asia and the Middle East for much of their expansion into new markets.”
4. Brick-And-Mortar Is Taking Over E-Commerce, Not Vice Versa
CBRE’s head of Retail Research in the Americas Melina Cordero said the perception that e-commerce is killing brick-and-mortar through online sales is misguided. She said most e-commerce sales are going back into brick-and-mortar brands’ pockets.
“What’s actually happening is that a big majority, over 50%, of online sales are actually going to brick-and-mortar brands. When you shop online at a brick-and-mortar store that’s technically an online purchase going to a brick-and-mortar brand,” she told Bisnow earlier this month. “There’s this misconception that online is countering brick-and-mortar, when actually what’s happening is online is going to brick-and-mortar.”
5. Warren Buffett Just Bet Big On The Sector
In a deal that signifies not all retail is in trouble, real estate mogul Warren Buffett’s Berkshire Hathaway grabbed a 9.8% stake in Store Capital Corp., a net lease retail REIT. The firm invested $377M in the REIT, which primarily leases to mom-and-pop retailers, and avoids the sectors that have seen their market eaten up by e-commerce, such as fashion, media and electronics.
6. Fundamentals Reflect Continued Strength In The Sector
Though net absorption remained flat in the first quarter with 14.5M SF of retail space absorbed, the availability rate made a rebound. Retail market availability dropped 10 basis points to 7% in Q1, with neighborhood, community and strip centers leading the push in declining availability since the recession.
The number of new retail properties completed in Q1 reached a nine-year high in 2017. Completions jumped 12.4% compared to Q1 2016, with Houston leading the way with 1M SF of retail completed in Q1; next came Los Angeles and Miami with 610K SF and 617K SF completed in Q1, respectively.