TH Real Estate: ‘Doomsday’ Scenarios Oversimplify U.S. Retail Landscape

Though negative news headlines about the retail sector abound, smart investors can still find investment opportunities, said TH Real Estate, London.

“Doomsday scenarios cited in news coverage are extrapolated to the entire industry, rather than to the vulnerable segments which are truly struggling,” said TH Real Estate Americas Research Head Melissa Reagen. “In our view, the average-to-low-performing retail centers are seeing value declines, while there is no evidence of the same for high-performing malls and shopping centers.”

In the De-cluttering the Retail Landscape report, Reagen said there are still “compelling” buying opportunities for high-performing power centers, lifestyle centers, neighborhood/community centers, grocery-anchored centers and malls. “We expect high-performing, experiential retail properties will continue to thrive in the coming decades, while average and low-performing retail centers will die a slow death or be repurposed,” she said.

While increasing online retail sales forced many “mediocre” retailers and shopping centers to close, e-commerce also gives retailers greater operating efficiency and the ability to offer a more personalized shopping experience, the report said.

TH Real Estate U.S. Head of Retail John Ragland noted the real estate market is being “de-cluttered” via a natural selection process. “E-commerce and technology are causing significant changes in retailers’ business models,” he said. “Weak retailers are being pushed out of business faster than ever before.”

Ragland predicted the result of this natural selection will be a set of financially healthier retailers and shopping centers. “Ultimately, we believe this disruption is causing opportunities on which savvy investors can capitalize,” he said.

Reagen said high-performing retail asset’s defining characteristics include a strong experiential component, continual adaptions to complement e-commerce and forward-looking capital improvements that address shifting consumer behavior and adapt to current technology.

“While online retail sales have provided consumers with an easier and more efficient way to shop, e-commerce cannot replace the consumers’ desire to shop in a physical store,” the report said.