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NEW YORK CITY-An economic recovery in the fourth quarter of the year should see a resurgence in the retail real estate market thanks, in part, to rate cuts by the Federal Reserve Bank and the tax cuts, says Rick Latella, senior director of retail valuation for Cushman & Wakefield.

“The retail market should begin to pick up speed in the first quarter of 2002,” he predicts, “with annualized sales growth above the approximate 4% expected in 2001, but below the average 6.5% experienced from 1995 to 2000.” However, cap rates may move up before stabilizing, he warns.

And as the economy improves, there will be greater demand for fortress malls, he says. These retail centers are A+ malls with a fashion department store along with at least four anchor stores and minimum sales of $450 per sf. The advantage of such malls is their barrier to entry for competitors because they have established outlets that are matched to the market.

Going forward, he expects that the Internet will pose little competition to brick-and-mortar businesses because the kind of merchandise sold in retail stores does not do sell as readily online. At the same time, “those merchants who embrace both bricks-and-mortar and e-commerce strategies should be the most successful,” he says.

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