WASHINGTON, DC—Unless you have been visiting an uncle on Mars for the past five years, everybody on Planet Earth knows the retail sales and investment market is in the dumpster.
However, in its periodic review of 38 U.S. metropolitan markets, Encino, CA-based Marcus Millichap finds most brokers still optimistic on a market rebound this year but none willing to venture when that will happen.
Here is a sector-by-sector quick market analysis:
Northeast
In New York, for example, Edward Jordan, (top right photo) regional manager of the Manhattan office, says “despite the slow start, long-term hold opportunities could pull liquid buyers off the sidelines in the second half of the year.”
However, in its periodic review of 38 U.S. metropolitan markets, Encino, CA-based Marcus Millichap finds most brokers still optimistic on a market rebound this year but none willing to venture when that will happen.
Here is a sector-by-sector quick market analysis:
Northeast
In New York, for example, Edward Jordan, (top right photo) regional manager of the Manhattan office, says “despite the slow start, long-term hold opportunities could pull liquid buyers off the sidelines in the second half of the year.”
Gary Lucas, (top left photo) regional manager, Boston, maintains “retail investment opportunities persist in Boston, despite a softening fundamental outlook. Investors seeking stability may want to consider assets in the core submarkets of Brookline, Cambridge and Waltham.“ Limited new inventory and steady demand in these areas will support occupancy levels this year, although properties will trade at premium prices.
In Washington, DC, “sales of multi-tenant properties have slowed, reflecting investors’ concerns about competition from recent supply additions and the challenges of re-leasing space in older assets,” points out regional manager Ramon Kochavi.
In nearby Virginia, for example, Kochavi says cap rates on older shopping centers start in the low-8 percent range, while Class A assets can trade at 7.2 percent to 7.8 percent.
Philadelphia regional manager Spencer Yablon (middle right photo) is a realist on his market. “Philadelphia’s mature market conditions present a reasonably positive long-term investment outlook, although reduce tenant demand will slow transaction velocity in 2009,” he says.
“Single-tenant properties with national-credit tenants, which trade with cap rates in the low-7 percent range will remain popular, especially assets priced below $$3 million.
Midwest
Milwaukee regional manager Matthew Fitzgerald (middle left photo) says “concerns over weakening fundamentals are expected to slow transaction velocity in 2009. Buyers are projected to target properties in densely inhabited Wisconsin areas, like Wauwatosa and West Allis.”
Like Milwaukee, Minneapolis regional manager Solomon Poretsky sees fewer sales deals surfacing this year, as “investors remain cautious due to weaker fundamentals. Out-of-state buyers will be relatively inactive, allowing local investors to selectively target assets that best fit their criteria.”
Gary Lucas, who manages the Boston, Charlotte and Kansas City offices, says investors “began to focus on the (Kansas City) suburbs last year, as redevelopment efforts downtown have been slow to gain traction.
“Local buyers who can handle management-intensive assets will likely target older properties in Johnson and Platte counties, where retail sales are forecast to grow and space demand is still fairly strong.”
Columbus, OH regional manager Steven Weinstock (middle right photo, under Spencer Yablon photo) is confident that “although sales activity is expected to remain subdued in the early part of 2009, the long-term prospects for Columbus will encourage investor interest in local properties.
“The metro continues to add households, a rare trend in the Midwest, and the spending power of an educated, well-paid work force is attractive to retailers.”
Detroit regional manager Steve Chaben (middle left photo, under Matthew Fitzgerald photo) is equally optimistic for his area. “Retail investment opportunities are project to emerge in Detroit, despite the current economic turmoil,” he says. “Private investors will make up the largest portion of the buyer pool as institutions and REITs shy away from the perceived risk associated with the local economy.”
In Indianapolis, “following two years of above-average metrowide sales activity, transaction velocity is expected to return to a more modest pace in 2009,” says regional manager Joshua Caruana (bottom right photo, under Steven Weinstock photo)
“Cap rates for multi-tenant properties average approximately 8.5 percent, while single-tenant deals are trading with initial yields in the high-7 percent to low-8 percent range, high enough to generate interest from out-of-state buyers.”
Cleveland regional manager Michael Glass looks for “opportunistic local buyers to remain active this year, targeting value-add properties in densely populated suburban submarkets, including Parma and Shaker Heights.
“Experienced cash buyers are seeking mismanaged assets but are being selective in negotiating purchase terms, causing cap rates marketwide to continue to rise.”
Steven Weinstock, who manages the Columbus and Cincinnati offices, says investment activity in Cincinnati this year is “expected to be conservative, though price corrections should be modest.
“Over the past few years, acquisition activity in the local retail market has centered on operational fundamentals, rather than on speculation for short-term gains. Consequently, price and velocity are not likely to fluctuate significantly.”
In Chicago, regional manager Greg LaBerge (middle right photo, under Joshua Caruana photo) says “citywide, cap rates in the multi-tenant segment currently are in the mid to high-7 percent range, but could climb by as much as 100 basis points in 2009.
“Single-tenant initial yields are forecast to increase at a more modest pace, and will likely approach the mid to high-7 percent range by year end.”
Southeast
West Palm Beach, FL regional manager Gregory Matus says that while many properties were on the market as 2009 started, “few deals are closing amid credit concerns. Cap rates on top multi-tenant assets are settling in the mid-7 percent region.”
Midwest
Milwaukee regional manager Matthew Fitzgerald (middle left photo) says “concerns over weakening fundamentals are expected to slow transaction velocity in 2009. Buyers are projected to target properties in densely inhabited Wisconsin areas, like Wauwatosa and West Allis.”
Like Milwaukee, Minneapolis regional manager Solomon Poretsky sees fewer sales deals surfacing this year, as “investors remain cautious due to weaker fundamentals. Out-of-state buyers will be relatively inactive, allowing local investors to selectively target assets that best fit their criteria.”
Gary Lucas, who manages the Boston, Charlotte and Kansas City offices, says investors “began to focus on the (Kansas City) suburbs last year, as redevelopment efforts downtown have been slow to gain traction.
“Local buyers who can handle management-intensive assets will likely target older properties in Johnson and Platte counties, where retail sales are forecast to grow and space demand is still fairly strong.”
Columbus, OH regional manager Steven Weinstock (middle right photo, under Spencer Yablon photo) is confident that “although sales activity is expected to remain subdued in the early part of 2009, the long-term prospects for Columbus will encourage investor interest in local properties.
“The metro continues to add households, a rare trend in the Midwest, and the spending power of an educated, well-paid work force is attractive to retailers.”
Detroit regional manager Steve Chaben (middle left photo, under Matthew Fitzgerald photo) is equally optimistic for his area. “Retail investment opportunities are project to emerge in Detroit, despite the current economic turmoil,” he says. “Private investors will make up the largest portion of the buyer pool as institutions and REITs shy away from the perceived risk associated with the local economy.”
In Indianapolis, “following two years of above-average metrowide sales activity, transaction velocity is expected to return to a more modest pace in 2009,” says regional manager Joshua Caruana (bottom right photo, under Steven Weinstock photo)
“Cap rates for multi-tenant properties average approximately 8.5 percent, while single-tenant deals are trading with initial yields in the high-7 percent to low-8 percent range, high enough to generate interest from out-of-state buyers.”
Cleveland regional manager Michael Glass looks for “opportunistic local buyers to remain active this year, targeting value-add properties in densely populated suburban submarkets, including Parma and Shaker Heights.
“Experienced cash buyers are seeking mismanaged assets but are being selective in negotiating purchase terms, causing cap rates marketwide to continue to rise.”
Steven Weinstock, who manages the Columbus and Cincinnati offices, says investment activity in Cincinnati this year is “expected to be conservative, though price corrections should be modest.
“Over the past few years, acquisition activity in the local retail market has centered on operational fundamentals, rather than on speculation for short-term gains. Consequently, price and velocity are not likely to fluctuate significantly.”
In Chicago, regional manager Greg LaBerge (middle right photo, under Joshua Caruana photo) says “citywide, cap rates in the multi-tenant segment currently are in the mid to high-7 percent range, but could climb by as much as 100 basis points in 2009.
“Single-tenant initial yields are forecast to increase at a more modest pace, and will likely approach the mid to high-7 percent range by year end.”
Southeast
West Palm Beach, FL regional manager Gregory Matus says that while many properties were on the market as 2009 started, “few deals are closing amid credit concerns. Cap rates on top multi-tenant assets are settling in the mid-7 percent region.”
In Tampa, regional manager Bryn Merrey (middle right photo, under Greg LaBerge photo) notes that “as Tampa and other major markets proceed into a period of diminished property performance, retailers and investors remain largely upbeat about the metro’s long-term prospects.“Optimism is supported by the project addition of more than 20,000 households annually over the next five years and the impact those residents will have on retail space demand.”
Orlando owners and investors “still embrace the metro area’s long-term prospects for robust household and income growth, but soft property fundamentals will slow activity in the first part of 2009,” predicts Bryn Merrey, who also manages the Tampa office.
“Nevertheless, the ongoing re-pricing of properties is resulting in rising cap rates, and buyers could start to return to the market as the year unfolds.”
In Miami, cap rates on multi-tenant properties occupied by local or small regional tenants start at about 8 percent and are expected to inch up in the months ahead as vacancy rises,” notes regional manager Kirk Felici (middle left photo under Bryn Merrey photo) “Assets with national tenants can trade in the mid-7 percent range.”Fort Lauderdale regional manager Gregory Matus, who also manages the West Palm Beach office, says cap rates for multi-tenant assets are “inching up toward the 8.5 percent to 9.0 percent range. Properties pricing within this band reflect the current and forecast weakness in operating fundamentals and are expected to bring an increasing number of buyers back into the market.”
In Jacksonville, “despite fundamental weakening, retail investment opportunities persist, particularly in the far southern reaches of the metro, near Interstate 95 and St. Augustine Road,” says sales manager David Bradley.
“Approximately 1,900 multi-family units are scheduled to be completed in the area over the next two years, and office development is picking, generating demand (also) for retail.”
Gary Lucas, who manages the Boston, Kansas City and Charlotte offices, says “turmoil and uncertainty within the banking and finance industries have caused investors to approach retail investments in Charlotte conservatively.
“Cap rates for Class A multi-tenant properties in sought-after residential markets were in the mid to high-7 percent range at year-end 2008 and are expected increase further this year.”
In Atlanta, investment activity “will remain modest this year, and cap rates are expected continue to edge higher through the metro,” says regional manager John Leonard (middle right photo, under Greg LaBerge photo) . “As sales activity in the multi-tenant segment slowed in 2008, cap rates pushed into the low-7 percent to mid-8 percent range.”
Southwest
Tucson regional manager David Guido says, “Near-term fluctuations aside, Tucson’s emerging status as a viable, long-term market for national retail chains will sustain investor interest.
“Cap rates in the low-7 percent range for single-tenant assets and high-8 percent range for multi-tenant deals are lower than the region’s long-term averages, which may encourage some owners to sell.”
Salt Lake City, like most of the other major markets, will see fewer deals this year, says regional manager Richard Bird. “The pricing expectations gap, restrictive lenders and weakened fundamentals (will) deter some investors.”
“Investor sentiment in San Antonio will remain positive during 2009, though activity among regional buyers may decline,” says regional manager J. Michael Watson. “As such, sellers may have to realign pricing expectations to compete with rising cap rates in the state’s larger metros.”
Las Vegas regional manager John Vorsheck remains bullish on his area. “Projected long-term population growth and Las Vegas’s status as a tourist destination will maintain investor interest in retail properties,” he believes. However, “sales velocity during the first half will likely be suppressed.”
Out-of-state buyers “are expected to play a less active role in the Dallas-Fort Worth retail market this year,” says regional manager Tim Speck (middle right photo, under John Leonard photo). “As a result, local investors may begin to expand their presence.”
Investors in Denver “will employ more cautious strategies this year, targeting single-tenant and top-tier multi-tenant assets in areas where space demand will outpace the metro average,” forecasts regional manager Adam Christoferson (middle left photo, under Kirk Felici photo).“Cap rates for assets in these areas, which include Lakewood and Arvada, are currently in the mid to high-7 percent range and are expected recede slightly in the coming months.”
The Houston retail market “will remain an attractive option for investors due to the relative health of the local economy and the metro’s history of shallow contractions during previous recessions,” says regional manager Michael Hoffman.
“As REITs and institutions slow acquisition activity over the coming months, local buyers are expected to seek higher-end multi-tenant deals in core locations, which had bee more difficult to obtain in recent years.”Far West
Investment activity is “expected to move forward at a moderate pace this year in the San Jose retail market,” says Steven Seligman, (middle left photo, under Adam Christofferson photo) regional manager of the Palo Alto office. “Buyers will continue to look to value-add opportunities, capitalizing on foot traffic and retailer demand near existing properties such as Santana Row and the Westfield Valley Fair Shopping Center, where builders are proposing a 600,000-square-foot redevelopment.”
Seattle’s “extended economic outlook and elevated development costs will continue to support healthy investor sentiment, but the wave of cooling fundamentals and a more conservating lending environment will result in reduced sales velocity,” says regional manager Gregory Wendelken. (middle right photo, under Tim Speck photo) “In recent years, large private buyers and institutions flocked to Seattle, a trend that is expected to taper off in the near term.”Sacramento’s investment retail market activity “will be minimal early in 2009, though a rise in listed properties may generate some activity by mid-year,” regional manager Robert Hicks. “Cap rates for single and multi-tenant assets, both currently averaging in the high-6 percent range, are expected to rise during the year.”
San Diego’s track record of strong operating conditions “will attract investors, though a buyer-seller disconnect persists,” points out regional manager Kent Williams. “Given the current economic weakness, assets that serve primary needs, including grocer-anchored centers and drugstores, should outperform specialty and luxury shops and attract buyers.”
“Tourism spending and the affluent neighborhoods that surround core shopping districts support San Francisco’s potential for a swift recovery and will ustain investor interest in the local retail market,” says regional manager Jeffrey Mishkin (middle left photo, under Steven Seligman photo) . “A disparity between buyers’ and sellers’ expectations, however, could continue to hamper trading this year.”
Long-term investors “will maintain a presence in the (California) Inland Empire, targeting areas that are expected to rebound the fastest, such as the centrally located cities of Corona, Ontario and Rancho Cucamonga,” says Douglas McCauley, (bottom right photo, under Gregory Wendelken photo) regional manager of the Ontario office.Still, he says, “transaction velocity metrowide will likely remain suppressed due to a wide pricing expectations gap between buyers and sellers.”
In Oregon, “Portland’s retail assets will continue to attract investors this year due to minimal competition from new stock,” says regional manager Tony Cassie. “Stabilized infill properties in the urban core, where new high-end apartment and condo developments have increased population density, will continue to garner attention from buyers.”
In Oakland, “minimal competitive threats from new construction will continue to attract investors with long-term holding objectives, though transaction velocity will remain measured this year, as uncertainty over the metro’s economy sidelines some buyers,,” says regional manager Jerry Smith.
“Owners seeking to exit the market will likely have to price assets below earlier valuations, which could attract buyers seeking discounts. Additionally, properties located near BART (transit) stations, such as the West Dublin-Pleasanton terminal scheduled to open this year, should generate increased interest.”
Orange County’s “embedded wealth (in California) and lack of developable land will help to maintain investor interest in local retail properties this year,” predicts Joseph Cesta, regional manager of the Newport Beach office. “Transaction velocity will vary by asset class, however, as buyers are expected to remain cautious when evaluating multi-tenant properties.”
In Los Angeles, “a favorable extended outlook will eventually lure retail property buyers, although sales activity is expected to remain limited throughout much of 2009,” says regional manager Stephen Stein (bottom right photo)“Investors will likely consider mixed-use projects in coastal cities such as Hermosa Beach and Manhattan Beach, given the lack of developable land in these locations.”
Contact: Stacey Corso, Corporate Communications, Marcus & Millichap, stacey.corso@marcusmillichap.com
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