Q2 Retail Sector Remains Stable, Shows Moderate Growth

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Though national retail rents continue on a downward slide, this isn't the same for certain markets. Washington D.C. showed year-over-year growth of 2.6%, while Tampa showed 1.9% and Boston 1.1%. Miami's year-over-year growth, in the meantime, stood at a whopping 13.2%. When it came to projected rent growth, Phoenix had the highest, averaging 4.2% annually through 2016.  Also on that list are Raleigh, NC (at 4% annually) and Las Vegas (which is projected to be as high as 8.5% in 2015).

"We knew certain markets would have faster growth because those markets fell faster and harder during the financial downturn," comments Greg Maloney, president and CEO of Jones Lang LaSalle Retail. "But the news was a lot more positive in these areas than we anticipated."

Part of the reason for the good news is tied to population growth. Many of the Florida markets, including Miami, are seeing a booming population and not a whole lot of retail supply coming on the market. Nor is that new supply likely to come online in the very near term, despite developers' desires to go out there and build.

"They can't get the money," explains Maloney, who operates out of JLL's Chicago office. "No lender is really stepping up to the plate and saying 'I'll give you the money for this project' unless it's near 70%-80% preleased." He believes sporadic development will pop up during 2013, with targeted types of developments in fast-growing population areas likely to take place within the next 24 to 36 months.

Then there are the unemployment statistics. Much like unemployment and jobs growth have an impact on multifamily properties and the apartment sector, that same trend impacts retail. Maloney points out that the retail sector feels job trends more quickly. "They first thing people do when they don't feel well about their job situations is to quit shopping; they'll buy what they need, rather than what they want," he tells GlobeSt.com.

These days, buyers remain uncertain about jobs and the future. As a result, the value retailers, such as Dollar Store and Ross Dress for Less, continue to do well, Maloney explains. Shoppers who used to frequent high-end stores are still looking for that low-cost deal. Yet on the other end of retail, luxury stores are also doing well. Though consumers are shopping at the Coach Stores and Neiman Marcus stores with more confidence, "they still haven't returned to pre-recession numbers," Maloney comments.  

It's the middle stores – the Sears, Dillard's and Macy's – that continue to lag. That lag will continue, Maloney states, until the unemployment/underemployment figure drops from 15% where it is today to 7%-8%. Consumers need to feel comfortable in their jobs. Once that happens, confidence returns and shoppers will start buying what they want, rather than what they need.

Maloney predicts that the third and fourth quarters will prove to be interesting, especially given the upcoming Presidential election and following holiday season. He notes that, regardless of who wins, consumers will likely increase their spending once the election is over. People tend to be naturally more optimistic after general elections, whether the incumbent wins or a new person comes into office. The sectors that are likely to show improvement are value and luxury retail, as well as home improvement.

But Maloney cautions that retail improvement doesn't mean the sector will automatically come roaring back in late 2012 or early 2013 following the general election and holiday season. "When we say 'better,' we're not talking about double-digit growth," he explains. "We're looking at a 3%-4% increase over last year, and last year was a good year."