Emerging Trends in Real Estate 2012 - Urban Land Institute

Chapter 4: Property Types in Perspective
driving traffic and sales. The mass distribution centers would
provide greater convenience for shoppers who order online.
“They can pick items up for more instant gratification or return
them easily without the hassle of waiting in lines.” Many tired
malls selling commodity merchandise should be adapted to
serve as multifaceted town centers with education, community,
or medical facilities, taking advantage of their often pivotal community
locations.
For 2012, the fortress centers and well-situated groceryanchored
retail—“like buying a bond”—will do well. “Neighbor hood
center buyers must be extremely selective about locations,
targeting assets with the top local supermarket chains and highest
sales-per-square-foot numbers.” Major opportunities exist in
burgeoning underserved or unserved Hispanic markets, especially
in the Southwest and on the West Coast. “Population and
income in these communities grow ahead of national trends. The
opportunity exists to stake out centers in neighborhoods, which
can evolve with their demographics.”
Exhibit 4-20
U.S. Retail Property Total Returns
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
1991
NCREIF
1993
1995
NAREIT
1997
1999
2001
2003
2005
2007
2009
2011*
Avoid
REITs strategically winnow portfolios, “selling cats and dogs.”
Buyers should think twice before making deals. “If the big mall
companies couldn’t make them work, why should anybody else
have a chance” Be very careful about upgrading strategies for
older malls—“they probably require a different use”—and worry
even more about power centers with lineups of too many commodity
retailers, which may be vulnerable.
Completions (msf)
Exhibit 4-19
U.S. Retail Completions and Vacancy Rates
35
30
25
20
15
10
5
0
1992
1994
Completions
1996
1998
2000
2002
2004
2006
2008
Vacancy Rate
15%
12%
Vacancy Rate
9%
6%
2010 2012* 2014*
-50%
Sources: NCREIF, NAREIT.
*Data as of June 30, 2011.
Development
The United States simply does not need additional shopping
center square footage, especially in old formats. Space per
capita will undergo a major squeeze-down for the foreseeable
future, but plenty of opportunity exists for redevelopment
and redesign. Construction lending will be bifurcated: smaller
players will have trouble scrounging financing from local and
regional banks, whereas REITs and institutional owners can
access credit lines from money-center institutions. Malls can
reinvent themselves quickly, so expect local operators with
reuse ideas to work with local governments on converting class
C and D malls and attempt to turn around tax-base drains.
“Some properties won’t make it.” “Luddites can build more
traditional centers outside North America” in underserved,
developing regions. Brazil is calling.
Outlook
“Very profound structural challenges” (online retailing competition)
will continue to push “transformative, not cataclysmic”
change in the shopping center world. “Outside of A/B+ malls
[controlled by a REIT oligopoly] and select cash-cow neighborhood
strip centers,” the “environment looks very rugged.”
Although the recession claimed surprisingly few casualties,
players “require clear-eyed realism” to recognize and capitalize
on changes, or they could lose ground quickly.
Source: REIS.
*Forecast.
Emerging Trends in Real Estate ® 2012
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