Retail investment activity isticking up, slowly. In the first half of the year, investmentactivity increased 3% nationally, over 2017, and the second quarteralone increased 41% year-over-year, according to research fromNewmark Knight Frank. The Western US has lead theincrease in activity, increasing 33% year-over-year and 96% for thesecond quarter alone. Despite the headlines, investment activityhas grown steadily since early 2015.

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“With the country coming off of ten straight quarters ofdecline, investor uncertainty due to a combination of interest ratespeculation and volatility, continued retailer consolidation,bankruptcies and general uncertainty coupled with a lack ofrefreshed pricing data points seems to have calmed,” GlennR. Rudy, senior managing director of retail investments atNKF Capital Markets, tells GlobeSt.com. “With the increased volumethe surge in data points is leading to realistic pricing discoveryand abundant capital is ready to continue this positivetrajectory.”

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In addition to popularity of West Coast markets, secondarymarkets are also seeing an increase in activity, and are actuallytrending above primary markets in terms of sales volumes.“Secondary markets, which historically have always trailed primarymarkets in terms of overall activity, outpaced primary marketsthrough the first half of 2018 by a significant margin,” says Rudy.“This is primarily due to the sheer lack of available product inprimary markets and its correlated pricing. However, now thatthere are some additional data points supporting today's pricing inthese secondary markets, the yields have simply been too attractivefor capital, starved for allocation, to resist.”

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While it is surprising to hear that retail investment isincreasing, it isn't surprising to hear the grocery-anchored retailhas been the favored asset class. Grocery anchored retail is highlyInternet resistant, and it is popular across investor classes. “Thesheer scarcity of core, grocery-anchored product has kept pricingat historic levels and even improved in some cases,” explains Rudy.“Grocery-anchored retail investments represent the flight-to-safetyalternative in a transformative industry. The fundamental ideathat a larger segment of the consumer base will continue topatronize the brick and mortar grocery store versus buying onlinedrives performance of these centers thus providing the mostreliable and predictable revenue across asset types.”

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Despite growing retail investment sales, the narrative aroundretail is generally negative. Rudy, however, says that everyproduct has challenges, and investment strategy is designed tomitigate that risk. “Clearly, there are challenges across allproduct type. Some may say none more than in retail,” heexplains. “To that we say: bring it on. Challenges breedopportunities. The transformation the retail industry hastaken has brought about one of the most exciting eras in thehistory of retail. We are fortunate to have as clients many at theforefront of this current retail innovation. These dynamicdevelopers and operators are proactively embracing an omnichannelstrategy with their tenants. That strategy is an integral partof the new experiential retail that breeds success. Their proactiveand thoughtful approach will be rewarded long-term as human beingsare social in nature with an inherent need to interact. Let'snot forget that brick and mortar sales still account for over 90%of all retail sales in the country.”

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Looking ahead, Rudy expects more growth. “We believe the secondhalf of the year will be robust as remaining uncertainty thathovered in the first half continues to subside,” he says. “Age oldparticipants in our industry sit with full allocations waiting tobe deployed. Re-engaged or completely new capital sources forretail investment are abundant. So long as the debt marketsremain relatively stable, we see no reason why there will not be asignificant uptick extending the positive performance of the firsthalf.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.