Investor Demand Returning to Retail Sector

Consumer retail spending now exceeds pre-COVID levels; investor confidence in retail real estate is also growing, reported JLL, Chicago.

The retail sector–especially non-essentials goods and services–was among the hardest-hit CRE sectors early in the pandemic, but as vaccinations increase and restrictions ease, investor interest is nearly back to pre-pandemic levels. The sector captured an 11-percent share of transaction volume year-to-date in 2021, nearly where it was before the 2020 lockdowns.

“Consumer shopping patterns have bounced back due to pent-up demand over the past 12 months,” said Danny Finkle, JLL Senior Managing Director. “People are spending money across the spectrum of retail locations.”

Finkle noted this increased spending goes “hand-in-hand” with investor sentiment, “so as consumers spend more on food and beverage, apparel and other non-essentials and spend time in malls, departments stores and lifestyle centers, capital will follow,” he said.

The Census Bureau’s Advanced Monthly Retail Trade Report reported a 28-plus percent increase in retail foot traffic year-over-year. The apparel category saw its sales jump more than 200 percent from May 2020.

Grocery-anchored retail continues to dominate investment sales with the lowest levels of vacancy, but total U.S. retail transaction volume topped $10.7 billion for assets over $5 million year-to-date through May, and community and neighborhood centers saw the highest trade volume of that total. But all retail segments, including malls and power centers, stand to benefit from investor demand returning to retail, JLL said.

“Investors are gaining confidence and they are going out on the risk spectrum to look for additional yield, which means branching out to other retail product types,” said JLL Senior Managing Director Chris Angelone. “Other categories of retail are performing well, as retailers’ balance sheets are healthier than they were pre-pandemic.”

Earlier-than-anticipated re-openings have eased investor concerns over the long-term health of both retail tenants and the retail property sector at-large, JLL reported.

“As the fundamentals in the retail space have improved, lender demand for high-quality assets has also returned,” said JLL Senior Managing Director Chris Drew. “We are witnessing a material increase in the number of institutional-quality lenders that are competing to make loans for this asset class and believe that this trend will only continue as the economy continues its historic rebound.”