If Retail is Flourishing, Why are There No Large Deals?
Little development has meant vacancies are low and rents are climbing.
Retailers are performing very well — maybe as good as they’ve performed in the last 10, 15, 20 years – pretty much across the entire retail perspective, according to a news video released this week by Marcus & Millichap.
Daniel Taub, Senior Vice President/National Director – Retail and Net Lease Divisions, said it doesn’t mean that there aren’t issues, but overall, the sector and most industries within retail are performing very well.
Taub attributes that to virtually no net new development of any note, compared to prior to the great financial crisis in 2008-09, leaving a supply-demand issue.
Vacancy rates have continued to decline, coming close to one of the lowest levels seen in a long time. Rents are going up, meanwhile, moving consistently above the average prior to the pandemic, with ranges depending upon location and use.
However transactions have not returned to a normal level due to the economic uncertainty and volatility in the capital markets, Taub says.
“We are seeing sellers with deal fatigue, as well as buyers at the same time are understanding that they aren’t going to get these massive discounts because retail overwhelmingly is a well-performing asset class.
“Based on what clients are telling us, as buyers and sellers, we should see a slow, but albeit gradual increase in transactions in the retail environment for net lease single-tenant retail, and multi-tenant retail of most shapes and sizes, maybe with the exclusion of the mall category.”
There are some exceptions, of course, such as Kimco’s acquisition of RPT this week.
But the most active investors today in both net lease single-tenant and multi-tenant are focusing on smaller deal sizes, Taub said.
The reason is they’re either paying all cash, or there is better access to debt, according to Taub, even though that debt costs more today.
In net lease retail, that could be deals priced between $3 million and $4 million and less. In unanchored and anchored multi-tenant retail, that could be between $6 million and $15 million, he said.