Starbucks’ own executive chairman, Howard Schultz has a few key insights on the state of retail properties. Schultz recently told Starbucks employees that “the retail sector was reaching a point where landlords of even prime centers would need to lower rents.” This doesn’t come as a shock to many as in the last two years more and more big time retailers have announced store closures due to bankruptcy filings.
Many retailers are worried that if the current state of the retail market persists that it might permanently reduce the price of their real estate. While others have some mixed feelings about the future of retail; JLL’s U.S. Retail Investment Outlook for 2017, found that in 2017 rents actually grew by 5.5 percent, a decrease from what was reported in 2016. This will ultimately effect the affordability of retail locations which will continue to be a key concern for renters this year. The same report found that the average U.S. rental rate was just under $18 per sq. ft., a slight increase from the previous year at $16.
Recent measurements of sale transactions found that in 2017 transactions reached $51.5 billion, a decrease of 22.5 percent from the previous year. Unfortunately the mall sector is seeing the greatest decrease, with a 53.5 percent drop. So what does this mean for traditional brick-and-motar stores?
According to Calvin Schnure of NAREIT, retail REITs had an occupancy rate of 95.8 percent in the fourth quarter of 2017, which is the highest that retail REITS has seen in the last 15 years. Although growth in demand for retail real estate space is only at 40 percent of where it was 10 years earlier. Developers have recognized the current state of the retail market and as a result are not constructing as much new real estate.
What are your thoughts on the current state of retail real estate? What does your current market look like? Do you see a dramatic shift in either direction?
To learn more about the current state of retail real estate read, National Real Estate Investor’s article “The Starbucks View of Retail Real Estate.”