NEW YORK CITY—With the fundamentals of the retail marketstrengthening and prices appreciating, the investment community isbullish on the sector in 2014. Add to that a strong first quarter,and the momentum is expected to pick up as increased demand forretail assets has created optimal conditions for sellers.

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In other words, retail is heating up, and there might not beenough properties to go around. GlobeSt.com spoke with JLL beforethe upcoming ICSC RECon 2014 to get their take on the sector.

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Grocery-anchored, urban high street retail and trophy malls topthe list of products prime for the picking as limited supply entersthe market: “While the most desired retail asset types remainhigh-quality grocery anchored centers and trophy malls, manyinvestors are getting outbid in gateway markets and are turningtheir attention to all different types of retail assets andmarkets. We're seeing an increased number of sales of strip centersand power centers come to market, receiving aggressive bids andtrading quickly,” commented Kris Cooper, ManagingDirector at JLL.

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While tightened coastal markets often offer buyers top-notchproduct, Cooper explains, JLL expects longevity and performance ina few key secondary markets given Millennials, the generationbetween 18 to 34, total 80 million Americans and spendapproximately $600 annually. By 2020, they are expected to spend$1.4 trillion, with 30% representing retail sales. As retailfollows rooftops, Las Vegas, Orlando, Charlotte, Raleigh andPhoenix top the chart of markets anticipating growth from thesealready savvy shoppers.

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The market as a whole is in a healthier state than at any pointsince the recession. “National rents are inchng up, and most metroareas are back in the black,” added MargaretCaldwell, Managing Director at JLL. Net absorptioncontinues to climb, and landlords are starting to exert some powerin tenant selection.

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Caldwell anticipates development to remain limited for now, butas demand rises, sees single-tenant big-box spaces, grocery stores,urban storefronts and lifestyle centers as likely to bedelivered.

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Not only are market fundamentals positioned in the sellers'favor, there are an increasing number of new buyers entering themarket. “The money is burning a hole in investors' pockets. Whilewe've seen private equity remain an active player, recentlyinterest from international investors is on the rise. They'rebidding aggressively on power centers, grocery and even sometraditional malls by pairing up with a US-based investor who willhold the majority stake,” added Caldwell.

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Caldwell cites the fact that cap rates on neighborhood centersand grocery range from 5 to 7 percent, depending on the market,whereas power center spreads are anywhere from 6.5 to 8percent, depending on the anchor sales performance anddemographics.

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What it all boils down to is if you are looking to diversifyyour holdings with retail, chances are you'll need to look beyond aclass A mall simply because there aren't as many coming to market –but that's not to say that a power or strip center won't bringhefty returns or steady cash flow.

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To see a JLL presentation from Kris Cooper on the sector,click the image at the top of the story.

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Geoffery Metz

Geoffery Metz is the content manager for ALM's GlobeSt.com, Credit Union Times and Treasury & Risk. Before joining ALM, he spent several years overseeing the newsroom at the financial wire service Business Wire, with special focus on multimedia presentation for the web.