CA Retail Markets Rank in Top 5

Editorial|&utm_term=|Website-Editorial-NAT(Website)|">Auction.com has identified the top markets in which to buy retail properties in the US during 2015 based on projected market-specific rent increases and vacancies for the year, and three of the top five are located in California. San Jose and San Francisco were ranked numbers one and two, respectively, and Los Angeles was ranked number five; Orlando and Ft. Lauderdale, FL, ranked three and four, respectively. The top markets in which to sell properties this year, according to the firm, are Kansas City, MO; Ft. Worth; Houston; Columbus, OH; and Philadelphia.

Retail, the real estate sector that had been trailing multifamily, industrial and office in recovering from the recession, is now showing an increase in transaction volume due to an improving economy, says Auction.com's EVP Rick Sharga. The firm reports that US retail transaction volume is “highly liquid,” coming in at $24 billion in the first quarter of the year, which is down modestly from the previous quarter but up 4.8% from a year ago, according to Real Capital Analytics.

The rise is the sector's largest 12-month rolling total since the market's peak of $89.7 billion in the third quarter of 2007. But, Sharga points out, the recovery is bifurcated, with some markets making great strides and others still struggling.

In terms of retail capital-markets performance, the West Coast is clearly leading the rest of the nation, with transaction volume at $7.2 billion in the first quarter, up 138% from a year ago. The Northeast came in at a distant second, with $4.2 billion in first-quarter transactions, according to Auction.com.

“While the retail sector's recovery varies by region and is challenged by the growing percentage of online sales, we believe that the sector's performance will accelerate over the next few years as the economy improves and wages increase,” says Sharga. “An improving job market, rising home prices, increasing consumer confidence and lower energy prices all point toward stronger consumer spending, which is massively important for the retail sector.

Some of the most promising retail markets in the country are located in the Southeast and West, which boast strong retail-asset trades as investors shift away from oil metros and toward coastal zones. In contrast, the Midwest and Northeast are showing weakness, due in part to generally slow population growth in many of these regions' markets, according to Auction.com.

Auction.com is projecting a 2% rent growth and a 9.8% vacancy rate for the US retail sector this year. While the retail market has seen the slowest recovery in fundamentals of all the major US commercial real estate sectors since the end of the Great Recession, the stronger macroeconomic backdrop bodes well for future retail spending, according to Peter Muoio, Auction.com's chief economist. Muoio believes this should accelerate demand for space in the coming years, which, together with the limited pipeline of new supply, will speed retail recovery.

“Auction.com anticipates a drop in retail vacancies to the mid-8% range by the end of 2018 as the sector's struggles inhibit new development and allow gradual improvement in absorption to chip away at availability,” says Muoio. “This will yield an acceleration to 2.7% average annual effective rent gains in that four-year span.”

As GlobeSt.com reported in April, Sharga told us exclusively that a fair amount of urban retail units are being plucked by investors. At that time, the firm reported closings on 32 commercial assets in February with a total combined value of $109 million, and the sale of retail properties accounted for more than half of those closings at $52 million, giving the retail sector a lead in deal volume for a second consecutive month.