What’s going on with prices?
Buxton notes that demand for retail real estate might be softening slightly. Meanwhile, total net asking rent is rising for many properties. In fact, average net asking rent hit a nine-year high in mid-2018 and was up 5.1 percent, year-over-year. Lifestyle centers and malls, though, did not experience an increase in rental prices. They actually saw a year-over-year decline of 5 percent.
“A factor that may put pressure on prices in the coming year is the Federal Reserve’s decision to increase interest rates,” Buxton adds. “This has historically been tied to a decrease in property prices as it becomes more expensive to finance new developments. The decision to increase rates has also historically been “a powerful signal of market expectations of an economic down cycle.”
The downward pressure on price will compete against a projected falling supply of retail space. PwC and the Urban Land Institute predict that the amount of space dedicated to retail will decline in the coming years. “With less retail space, landlords will be looking for fewer tenants and expecting higher rents with the constrained supply,” Buxton says.
What’s in demand?
Stephen Polanski, Buxton SVP, says “A real estate will continue to be in high demand” pushing into 2019. “The retailers and restaurants growing in these markets are competing for the best of the best locations,” he says.
So what happens to the B and C properties? PwC and the Urban Land Institute simply believe that many shopping center properties are not going to come back as successful retail assets.
“But while few have been reduced in price to mere land value, many are well below replacement cost and have good locations for alternative uses,” they write. “If a site is sufficiently large, mixed use is a great option for close-in suburbs looking to exploit maturing millennials’ desire to enter their next life-cycle phase. There also is an opportunity to turn the tables on the e-commerce trend that fostered the obsolescence by redevelopment into distribution facilities.”
In sum: real estate classification matters, but there are other patterns in the specific property types attracting interest.