IRVINE, CA—“The doomsayers were wrong.” So says Rick Chichester, president and CEO of locally based Faris Lee Investments, in a newly published white paper “The Case for Retail Investment in a ‘New Normal’ Economy.” Fresh on the heels of an exuberant RECon 2014, where the retail industry was nearly giddy over its post-recessionary recovery, the white paper looks to ground that exuberance in facts.
The doomsayers Chichester referenced were those who declared the mall and other shopping venues “on life support.” In fact, while there are still challenges ahead for the sector, the paper makes a strong case for retail investment.
Much of the doomsayers’ concern was focused on inroads made by Internet shopping, and as the white paper points out, the web did account for 6% of total retail sales last year, “up from around 2% a decade ago.”
To download the complete white paper “The Case for Retail Investment in a ‘New Normal’ Economy,” click here.
“But retailers that run physical stores, and the properties in which they reside, are far from dead,” Chichester states. “Instead, online shopping has improved their productivity and driven greater creativity.” Spurred on by the new competition, smart retailers “enhanced their online operations,” and created a multi-channel experience web-alone could not replicate. As a result, the report specified names among the top 20 Internet retailers that also have “a significant brick-and-mortar presence.”
In the post-recessionary economy, retail also gains by the tangible nature it shares with all commercial real estate sectors. “There is a comfort and familiarity with commercial real estate, especially in the retail sector,” the paper points out. “People recognize the tenants in shopping centers and they trust the brands that often occupy single-tenant assets.” Facing retirement, Baby Boomers especially gravitate to the stability of real estate as a whole and retail specifically. The white paper compares retail returns favorably against the S&P and the Dow.
Part of the shifting retail picture is of course consumer buying habits. While the paper indicates that spending has risen every year since 2011, much of that is still in needs-based and discount buying.
Largely playing into this consumer dynamic, and therefore what the white paper refers to as the darling of commercial real estate, is net lease. “The single-tenant net lease sector is tremendously favorable right now because of its strong defense against e-commerce,” Chichester says. “The retailers that go into these types of properties are nearly always necessity stores or food-oriented enterprises that a consumer can’t duplicate online.”
In all, Chichester says that right now is, “an excellent time to consider retail as a wealth creation or portfolio diversification strategy.”
To read the full findings, as well as the impact of the recession on Retail, the new era of financing and the dynamic between expansion and new construction, click the button below.