Retail: Investment Interest Strong Despite Neg Absorption

PHOENIX-Though the retail sector posted a negative 582,887 square feet of overall net absorption during the first half of 2011, the silver lining was that investors liked the overall fundamentals enough to park their money in the region. According to locally based Cassidy Turley BRE Commercial’s mid-year Retail Market Snapshot, investment interest in area retail assets was at its strongest since Q2 2007.

According to Chris Hollenbeck, Cassidy Turley’s senior associate, retail group, the combination of assets’ coming to market at appealing prices combined with stable lease rates made the retail sector attractive for investors, a trend that will continue during the rest of the year. “There are a lot of retail properties selling at great rates,” he tells GlobeSt.com. “Plus rents are staying strong in good areas as well.”

There isn’t one overall type of asset to which investors are flocking, though much of what’s available seems to be coming from special servicers and lenders. Hollenbeck notes that, while some investors are buying solid properties with quality tenants, others are just as interested in purchasing less stable assets at low replacement costs as part of a turnaround strategy.

Furthermore, despite absorption in the negative regions, Hollenbeck says leasing activity is picking up. “Fast-casual restaurants continue to expand,” he explains. “So are the discount stores, such as Dollar Tree, Ross and Marshalls.” These retailers plan to open during mid-to-late fall 2011, in time for the holiday season.

The appeal of Phoenix retail investment is further boosted by the lack of new product coming online. The Cassidy Turley snapshot points out that approximately 231,785 square feet is under construction, and Hollenbeck says none of that space is speculative.  “Construction hasn’t been speculative for awhile,” he adds.

Though retailers are looking to the holidays in their leasing strategies, Hollenbeck says not to expect any huge swings in leasing during the next six-to-12 months but just steady, measured growth. “There won’t be any dramatic changes or increases,” he says. “I don’t think we’ll see much difference from what’s going on right now.”