JLL Sees 20% Rise in Retail Sector Investments

NEW YORK CITY-With retail properties accounting for 19% of total US investment sales volume year-to-date, Jones Lang LaSalle is predicting a 20% increase in transaction volume next year, GlobeSt.com has learned exclusively. The firm made its predictions Monday during a presentation at the ICSC New York National Conference & Deal Making event here.

“Total retail investment is expected to increase upwards of 20% in 2014, as pent-up demand that was not satisfied in 2013 fuels investments and investors look to balance their portfolios,” says Greg Maloney, president and CEO of Jones Lang LaSalle Retail. With fundamentals strengthening after the recession took a heavy toll on the sector, “the retail market will continue to turn around despite store closings and consolidation.”

In the coming year, Maloney says, “Vacancy rates are projected to inch downward driven by power center popularity while rents are expected to increase, albeit slightly, for the fourth straight quarter. We expect gains to become more widespread across markets in the coming year.”

In line with this rising tide, Kris Cooper, managing director, capital markets with JLL, sees more portfolios coming to market “as REITs continue to dispose of assets in the year ahead.” These portfolios, adds Cooper, comprise a broad spectrum of class B and C assets.

“As sellers look to maximize the cycle and their proceeds, putting product on the market in bulk will take advantage of economies of scale” just as acquiring small portfolios will allow buyers to immediately expand their footprint in a region, he says. “We expect these small portfolio sales to pique the interest of investors looking to deploy capital into value-add assets, with private equity remaining an active buyer in the segment. Institutional investors will still be aggressively looking for single core retail assets around the country.”

Jimmy Board, EVP for real estate investment banking at JLL, predicts that lenders will continue to seek retail opportunities next year “to diversify their allocation of funds. We expect investors to take advantage of the liquidity in the capital markets for retail product and readily available debt to facilitate new acquisitions and refinancings that will ultimately increase leveraged returns.”

Right now, Board says, “it's prime time” for long-term holders of core and stabilized retail assets to secure fixed-rate financing and lock in historically low rates. “Borrowers will continue to take advantage of floating-rate debt for redevelopment of transitional assets in core to secondary plus locations.”

JLL Retail's COO, Kristin Mueller, cites improved operating performance and consumer demand for physical points of sale as spurring retail owners “to invest into existing assets, giving properties a long-overdue makeover. Investors that execute stalled expansions and renovations can profit tremendously from the market's upswing and ability to re-tenant vacant space. The much-needed injection of capital will benefit investors who plan to go to market before 2020 with updated product, as they'll capitalize on the constricted new development pipeline, increased property values and stabilized rent rolls.”