Here’s a quick preview of the year ahead, as compiled from such industry analysts as Marcus and Millichap:
The year 2009 saw a large uptick in store closures, especially the first half of the year, and while the weakness is expected to continue well into the new year, there are some early signs that there may be life in the retails sector after all. Excluding autos, recent retail sales data indicates some small glimmers of light at the end of the tunnel. Most sectors posted modest gains from August to September, with retails sales increasing by 0.5 percent. Granted, that is a nearly 5 percent decrease year over year. It could take another several months before we see significant improvements due to the slowing effects of low employment, weak housing sales, tight credit, and a growing consumer inclination to save money. The numbers do show some bright spots, particularly among necessity-based retailers such as groceries and drugstores and dollar stores, all of which benefitted from consumer cost-trimming as the economy softened.
Softening demand among tenants contributed to a 45 percent decline in investment activity among single-tenant retail assets year to day through September. An evolving trend over the past few years has seen investors moving to quick-service restaurants and drugstores for better returns. However, fewer exchange sales and sale-leaseback transactions should hold down investment activity for the first 6 months or so of 2010. With fewer active buyers, pricings are seen to be declining somewhat and cap rates have increased.
By late 2009, cap rates had pushed up an average of 90 basis points, and as that continues, some buyers will pull out of the market, we anticipate. Demand for lesser properties with at-risk tenants should remain weak through 2010 as investors and lenders avoid assets with a greater likelihood of going dark.
