E-Commerce Slowing Retail Centers
The growth of e-commerce, which has led to scores of store closures across the U.S., is meaningfully affecting many retail property markets, analysts say.
CBRE reported that non-store retailer sales rose nearly 13 percent year-over-year in the fourth quarter. “Conversely, department stores saw deeper and accelerating losses from prior-year levels,” CBRE said.
Reis Economist Barbara Byrne Denham noted that although the fourth quarter saw positive net absorption, the U.S. vacancy rate for neighborhood and community shopping centers remained flat at 9.9 percent and regional mall vacancy held at 7.8 percent–unchanged from the prior quarter or from the fourth quarter of 2015.
“The retail real estate market has trailed the other property types–apartment, office and industrial–consistently throughout this expansion as bricks-and-mortar retail businesses have suffered at the hands of both e-commerce and the changing fashion whims that have led to hundreds of store closures,” Byrne Denham said.
Byrne Denham noted that both Macy’s and Sears/Kmart announced more store closures early this year. Macy’s store closures alone will cut at least 5,300 jobs, she said.
“Retail remains a story of the haves and the have-nots, and the old cliché ‘location, location, location’ really comes into play,” Cushman & Wakefield Global Chief Economist Kevin Thorpe said in C&W’s Retail MarketBeat report. “There remain wide variations in terms of shopping center demand at the local level based on class, type and size.”
Thorpe noted that neighborhood and community centers, with their core tenancy rooted in grocery or drug store anchors and mostly food- or service-related inline users, will be far less affected by 2017’s store closures than any other shopping center type. “Unanchored strip centers may not feel much of that pain either, although this product type [without an anchor tenant to draw customers] can be volatile, especially if it is not in a premier location.” He said larger power/regional and lifestyle centers will likely feel some impact, “but the bulk of this year’s anticipated closures are likely to hit mall properties.”
Thorpe said that regardless of shopping center type, retailers that are reducing their store counts are generally closing Class B and C locations “The landlords of Class A or trophy properties will not experience even close to the same impact from these consolidations,” he said.
But just as a rising tide lifts all boats, a diminished tenant pool is likely to weigh down even the strongest projects, “but these will still be the projects that garner the most market demand in 2017 and beyond,” Thorpe said.
“Our outlook for neighborhood and community shopping centers remains cautious yet favorable on a macro level, but a number of weaker metros will likely weigh on the overall average keeping growth at a lower rate than we have seen over the last few years when restaurants were driving the growth,” Byrne Denham said. “We are less favorable on malls, however, as they will continue to suffer given the continued big box closures recently announced.”
