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Capital Still Chasing Retail Real Estate, With Limited Product Coming Online

| December 16, 2016 | 0 Comments

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Cushman & Wakefield’s N.J. Investment Sales Team Shares Views from ICSC New York Dealmaking Event

EAST RUTHERFORD, N.J., Dec. 16, 2016 – There is no shortage of capital chasing retail real estate heading into 2017, according to Cushman & Wakefield’s Metropolitan Area Capital Markets Group. At the same time, limited product coming online for sale continues to dampen transactional volume.

Members of the Cushman & Wakefield investment sales team met with institutions, private capital and developers during the recent International Council of Shopping Center’s (ICSC’s) New York Dealmaking event – which broke attendance records with some 10,000 participants. Brian Whitmer, retail practice lead of the Metropolitan Area Capital Markets Group, commented on what industry leaders are saying about the capital markets and where they are headed.

“We are still seeing a lot of interest in the retail sector, but investors are having trouble finding quality product in the market,” Whitmer noted. “They have been increasingly more selective, targeting core markets, urban street retail and grocery-anchored shopping centers with strong credit. Yet most of the product coming online is located in secondary or tertiary assets, or non-core locations.”

For context, Cushman & Wakefield’s Metropolitan Area Capital Markets Group has tracked a 38 percent drop in total retail real estate sales volume in the tri-state market year-over-year, with $1.9 billion in trades to date in 2016. The number of transactions is down 28 percent, to a total of 86 sales. Grocery-anchored properties in Northern New Jersey accounted for 86 percent of total transactions.

At the same time, Nick Karali, an associate director with the team, said a contrarian view is beginning to emerge. “Some investors are going after secondary product at slightly higher cap rates,” he commented. “In turn, we expect REITs to shed some of their secondary and tertiary assets in 2017 as they continue to hold core grocery-anchored and urban retail properties.”

The Metropolitan Area Capital Markets Group conversations at the New York Dealmaking event also revealed continued concern about e-commerce and how it will affect the future of retail. “Here in the Northeast, landlords are also looking to fill the voids left in 2016 by the loss of big-box anchors like A&P and its affiliated brands, and Sports Authority,” he said. “We are seeing a general trend to incorporate service, food and entertainment tenants, which are somewhat immune to e-commerce.”

Seth Pollack, a director at Cushman and Wakefield, noted that many industry players expect the rise of interest rates to influence retail property trades going forward. Yet he added that other product types – like multifamily and industrial – will see a greater impact. “Retail is more sheltered than other sectors, given that average cap rates are slightly higher, which still allows for leverage to be accretive.”

Cushman & Wakefield’s Metropolitan Area Capital Markets Group, itself, marketed six grocery-anchored centers in 2016, receiving a wide array of investor interest from REITS, institutional funds, regional private investors and 1031 exchange buyers. The offerings with investment-grade grocers and future revenue growth were the most sought-after by REITS and institutions. The centers that did not meet these criteria attracted the most aggressive capital from high-net-worth and 1031 exchange investors.

Based in East Rutherford, N.J., the Metropolitan Area Capital Markets Group specializes exclusively in investment sales of office, industrial, multifamily and retail properties throughout New Jersey, New York, and Fairfield County, Connecticut. The team has completed more than $27 billion worth of transactions since 2000, closing over $2.7 billion in sales year-to-date 2016.

 

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About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit or follow @CushWake on Twitter.

 

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