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Glimmers of Hope

Soaring online sales are continuing to shake things up in the retail real estate sector. The impact is significant – but by no means equal. There are some winners and losers emerging as retailers and landlords alike scramble to adapt to a changing marketplace.

Sales data is starting to paint a grim picture for brick-and-mortar retail. Overall, retail sales achieved a healthy growth rate of 4.1 percent during 2016. However, e-commerce is taking a bigger bite out of that total volume, with online sales that surged 14.3 percent last year, according to CBRE.

That shift is starting to have a more visible impact on retailer strategies and the demand for space. “When the whole internet scare started coming out about 10 years ago, everybody was relieved that the impact wasn’t felt immediately,” says Steven K. Graul, CCIM, president and principal broker at Innovative Concept Associates, a restaurant real estate advisory firm based in Reston, Va. “But I think we are certainly feeling it over time.”

Part of that impact appears to be a tepid demand for space. The U.S. vacancy rate for neighborhood and community shopping centers was relatively flat last year, with a 10-basis point improvement to 9.9 percent, while asking rents increased 1.8 percent. The statistics for malls tell a similar story: a flat vacancy rate and very little change in asking or effective rents. The regional mall vacancy rate ended 2016 at 7.8 percent – no change from last quarter or from the fourth quarter of 2015 – while asking rents increased 2 percent for the year, according to Reis.

Retail has been hammered by a barrage of negative news related to retailer bankruptcies and store closures that run the gamut from giants such as Macy’s and J.C. Penney to a slew of smaller shop tenants that include Payless Shoes, Wet Seal, and The Limited, to name a few. In fact, 2016 was the biggest year of closures for major chains since coming out of the recession, with 4,000 stores that were shuttered, according to Cushman & Wakefield. The company is  predicting that store closures will increase by 25 percent this year to reach about 5,000 store closures.

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It also is important to note that the outlook for retail is not all doom and gloom. “We have seen a lot of negative chatter in the market about retail,” says Spencer Levy, head of Research in the Americas at CBRE. “The negative chatter is caused by real softness in the B and C mall and B and C power center space. But if you exclude those areas, retail overall is strong. Institutional-quality retail properties, grocery-anchored centers, and neighborhood centers are doing very, very well, and we expect a good year in 2017.”

 

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