Quarantine orders, as well as a reticent consumer sentiment that took hold of the country earlier this year due to the Coronavirus, dovetailed to wreak havoc on the retail sector.
Mall vacancies have soared to their highest level in 20 years during the third quarter, increasing by 0.3% to 10.1%, according to Moody’s Analytics REIS.
In another sign of the sector’s struggles: two major retail REITs CBL & Associates Properties and PREIT, have filed for bankruptcy.
Still, pockets of opportunity can be found. A report by Crexi—based in part on data from PwC and the Urban Land Institute—named 17 cities in which the retail market was strong, or surging, in the third quarter, and where it recommends that investors buy properties.
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The list includes five destinations comprising the “Super Sun Belt,” which Crexi identified as fast-growing Southern cities that feature strong economies but are affordable for both residents and businesses. Among them are Atlanta, Dallas/Fort Worth, Houston, Phoenix and San Antonio. Atlanta “has plenty of development in the pipeline,” while retail in the DFW Metroplex is “seeing one of the strongest rebounds amongst all major metro areas” according to Crexi.
Landlords in Houston are providing flexibility for potential investors by focusing on short-term leases while Phoenix posted positive net absorption of 101,270 square feet in the third quarter and has about 672,000 square feet of retail under construction, Crexi said. Additionally, San Antonio posted a relatively low vacancy rate of 5.7% and pulled in average asking rents of $16.29 for triple-net leases.
Crexi also named four of the country’s top ten “18-hour cities”—which are popular locations that aren’t always affordable but are still less expensive than major metropolitan areas—as particularly strong.
They are Austin, where future rental increases appear likely and the vacancy rate in the third quarter was low at 5.4%; Denver, which “is poised to fare better than other major cities” because of its Live-Work-Play status; Portland, OR, where rental rates are moving up while construction deliveries are down, and San Diego, where both rental rates and construction deliveries are headed upward, Crexi said, “which indicates that the future demand for leasing and buying retail property for sale in San Diego will remain strong.”
Lastly, Crexi recommended investors consider several smaller markets, including Boise, ID; Chattanooga, TN; Des Moines, IA; Greenville, NC; Knoxville, TN; Omaha, NE; Portland, Maine and Richmond, VA. Those cities reportedly feature lively downtown corridors, cultural diversity, amenities and a lower cost of living—and of doing business—than other cities.