WASHINGTON, DC-Dipping consumer confidence has led most retail real estate companies to lower their sales expectations and their percentage rent expectations this year, according to Amy deLone, associate analyst at Banc of America Securities. She says because of long-term leases, most retail real estate companies are somewhat buffered by lagging retail sales.

Speaking to members of the National Association of Real Estate Investment Trust during a recent conference, deLone said consumer confidence is at its lowest level in three years. Expectations have taken a decisive downturn and are at their lowest level since 1993.

“While company managements don't see further (major retail) bankruptcies on the horizon, making them relatively confident about reaching their stated occupancy goals, they do expect slower rental growth than anticipated,” she said. Most companies have pared back their same-store NOI growth to between 2% and 4% this year, she said.

She pointed to actions taken by several retailers who are paring back their projected growth rates. For instance, GAP has decided to lower its 2001 square-footage growth from 30% to 15-20%, she said. “This deceleration in growth, coupled with store closings from JC Penney, Montgomery Ward and Bradlees will continue to put pressure on occupancies,” she said.

“Our view is that any deceleration in store growth will be felt in large part by weaker properties as we expect the higher performing properties, measured by sales per square foot, to continue to experience strong tenant demand,” she said, adding that the economic situation would have to become “more dramatic” before retail real estate companies experience a significant drop in occupancy.

She says that despite the grim economic outlook, the expectation for retail REITs is for a fairly stable year. Expected growth for malls is 8.4%, strip malls is 7.2% and outlets is 7.3%. “We believe these growths are respectable considering the uncertainty of the retail environment,” she said.

Instant Insights /

BofA Executive: Retail REIT Outlook 'Respectable'

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