Latest posts by Randolph Taylor (see all)
- Multifamily Chicago Report - April 23, 2019
- Low Unemployment Fuels Housing Demand, Favors Apartments - March 20, 2019
- Illinois Rent Control Webcast Tomorrow - March 19, 2019
The rate fell to 9.5 percent, down from 10.1 percent in the fourth quarter—but an increase from the year-earlier period's 8.9 percent.
"I don't see anything on the horizon that's going to goose the vacancy," said Kim McGuire, a senior vice president of CBRE, which conducted the survey. Not that much new construction is hitting the market, he said, and what does is significantly pre-leased.
Moreover, the unemployment rate fell to a 10-year low of 4.5 percent in March, and consumer confidence rose to its highest level since 2000, spurring demand, CBRE said. Asking rents climbed to $18.65 a square foot from $18.54 in the fourth quarter. Asking rents were $18.75 a year ago.
But any optimism on the retail front is tempered by prospects for a record year of bankruptcies in 2017, as the industry adjusts to more online shopping and fewer visits to the mall. Already this year, bankruptcy filers include the Limited, RadioShack, hhgregg and Gander Mountain. Other retailers, like Sears Holdings and Macy's, are closing stores by the score.
The picture for retail landlords has improved since the third quarter, when vacancy hit a recent peak of 10.2 percent. A major factor was more than 1.3 million square feet flooding the market after Sports Authority's liquidation.
Although the biggest first-quarter leases were for a Mariano's supermarket in Crystal Lake and a Dick's Sporting Goods store in Gurnee, fitness facilities—whether big (LA Fitness) or small (Orangetheory Fitness)—are the hungriest space eaters, CBRE said.
Another bright sector was "power/community" developments, where first-quarter vacancy was 7.2 percent.
Mellody Farm, a 270,000-square-foot mixed-use development in Vernon Hills announced this month, is due for completion by the end of next year. Anchors include a Whole Foods Market, Nordstrom Rack and REI.
Also in the category is Kildeer Village Square under development in north suburban Kildeer.
The lowest vacancy was in the city north of the Eisenhower Expressway, at 3 percent, while the west suburbs clocked in at 5.8 percent. Far west suburbs had the highest submarket vacancy (12.9 percent), while neighborhood vacancy overall was 13.5 percent.
"Anything that has 'far' in front of it has high vacancy," said McGuire, a result of overly optimistic developer projections for housing growth. (The far southwest suburbs were an exception, with 5 percent vacancy.)
Although fast-casual restaurants have propelled leasing, the category is not immune to competition. Two pizza chains retrenched: Toppers closed all five Chicago-area locations, and Pie Five shut eight of nine local restaurants.
On the South Side, Binny's Beverage Depot moved its Hyde Park location to 47th Street in the Kenwood neighborhood, increasing its store size to 11,000 square feet from 3,500.
|1 Mi||3 Mi||5 Mi|
|Ave HH Inc||$92750||$92253||$94446|
High visibility multi-unit Retail Strip Center For Sale at the intersection of S Bartlett Rd and Streamwood Blvd. Over 9000 SF of property on 3/4 of an acre offering a complimentary mix of tenants including a Hair Salon, Dry Cleaner, Staffing Business, Pet Grooming, and Chiropractor. High population densities of almost 100,000 people within 3-miles of the site. Upside potential with improved occupancy and facade renovations. Competitively priced at a little over $55/SF.
|1 Mi||3 Mi||5 Mi|
|Ave HH Inc||$92750||$92253||$94446|
[pw_map address="521 S Bartlett Rd Streamwood, IL 60107"]
Former Hardee’s Drive-thru Fast Food Restaurant on a highly visible out-parcel of the Lemont Plaza, a vibrant 116,887 sf grocery store-anchored neighborhood shopping center located at the high traffic intersection of State Street (Lemont Road) and 127th, in one of the fastest growing communities in Chicago’s Southwest suburbs.
Anchored by quality retailers such as Chipain’s Fresh Market, Ace Hardware, Goodwill, Dollar Tree, Total Fitness, Subway, Dunkin Donuts and adjacent McDonalds.
Lemont Plaza is the premier local shopping destination for the town with upper-middle-income shoppers.
The mean retail cap rate decline by 30 basis points during the quarter to 7.2%. Despite this, the 12-month rolling cap rate was unchanged at 7.4%. This is the first time in about a year that the mean cap rate has fallen below the 12-month rolling cap rate, indicating some recent pricing momentum in the market and intimating that the 12-month rolling cap rate could be heading lower in the coming quarters.
Moreover, the 12-month rolling cap rate remained roughly 70 basis points below the historical average of that metric. This is a bit wider than what we observed for apartment and office although it is roughly in line with the difference from the last two quarters. Over time, retail properties continue to get more expensive, with all of the aforementioned cap rate measures at or near post-recession lows.
Ongoing improvements in the labor market and consumer spending are slowly translating into more demand for retail goods and space while supply growth remains muted. That doesn’t mean that this property sector isn’t without its challenges, but that despite the obvious headwinds investors are finding some value in retail centers. And this is an interesting point – vis-à-vis the other major property types, it is not a stretch to say that retail (in our case here neighborhood and community centers) faces the most serious structural challenges such as the inexorable rise of e-commerce and the proliferation of new retail subtypes complicates the landscape. Yet, investors are finding enough value that cap rates are at these levels today.
Cap rates are a measure of a property’s investment potential, independent of the specific buyer.
Investors, lenders, and appraisers use the current cap rate from Reis to estimate the appropriate purchase price for different types of income producing properties.
To give our clients a complete picture of the income value of a specific property Reis evaluates three cap rates in our proformas, which are included in our sales comps, and can be seen in the cap rates proforma example above.
National Retail Market
On a quarterly basis, retail fundamentals have been improving only slightly. The third quarter was no different - the national vacancy rate for neighborhood and community shopping centers was once again unchanged at 10.1 percent. This marked the second consecutive quarter that vacancy was stagnant. Over the last 12 months, the national vacancy rate declined by just 20 basis points, a rather modest change for that duration of time.
Asking and effective rents both grew by 0.5 percent this quarter. This is just about on par with rent growth over the last couple of quarters. This rate of rent growth is understandable, given the relative lack of demand for these centers.
What about regional malls, the larger property type? During the third quarter, the regional mall vacancy rate was unchanged at 7.9 percent. The vacancy rate has remained essentially the same between the fourth quarter of 2013 and the third quarter of 2015. Asking rents did grow by 0.5 percent during the third quarter – year-over-year rent growth remains at its strongest since before the recession in 2007. However, this continues to be largely driven by the performance of higher end malls. Malls further down the quality spectrum are often burdened with high vacancy rates, often from unfilled anchor tenant space, preventing them from exercising pricing power over current and potential tenants.
Supply and Demand Trends
The outlook should be relatively bright for retail sales, with consumer spending still relatively healthy and benefiting from cheaper oil. However, any benefit of said brighter outlook for retail properties is likely to remain muted, given how eCommerce appears to be acting as a constraint on demand for brick and mortar space.
Source: REIS Victor Calanog on Dec 8, 2015
Asking rents at strip and enclosed malls increased by 0.5% in the first quarter from the prior quarter, according to real-estate research firm Reis Inc. Shopping-center asking rents are up 1.9% from a year ago, while mall asking rents are up 1.8% annually.
The average vacancy rate for shopping centers fell to 10.1% from 10.4% a year earlier. Shopping centers have struggled to fill retail space since the downturn. Vacancy rates peaked at 11% in 2010 and haven’t fallen meaningfully since then.
Malls, on the other hand, have recovered considerably more quickly. Vacancy rates at regional malls fell to 7.9% in the first quarter from their peak of 9.4% in the third quarter of 2013, according to Reis.
Part of the divergence in recovery has to do with supply, according to Ryan Severino, a senior economist for Reis. There was a surge in shopping-center construction before the downturn and the market has had trouble absorbing that space with new retail leases. Mall construction, by contrast, has fallen dramatically over the past two decades.
Another issue is competition, said Mr. Severino. Consumers have more options for where to buy the items available at strip centers, including the Internet, outlet centers and downtown shops.
“Demand has kind of splintered,” Mr. Severino said. “When it comes to neighborhood and community centers, they’re often selling more mundane products. You don’t find a lot of Gucci stores in those centers.”
Rick Caruso, a real-estate investor who owns 10 open-air shopping centers in Southern California, including The Grove in Los Angeles and The Americana at Brand in Glendale, said rents are rising in large part because online retailers like eyeglasses shop Warby Parker, apparel maker Bonobos and others are seeking a physical presence in shopping centers to showcase their products.
He said Caruso Affiliated, his development firm, has a list of two dozen of these so-called e-tailers seeking brick-and-mortar spaces in his centers.
“We’re pushing up rents across the board, but only when we can have a healthy retailer,” Mr. Caruso said. “Retailers are just more bullish right now.”
Source: Wall Street Journal ROBBIE WHELAN April 3, 2015 12:01 a.m. ET