Partners’ Post

Despite the headlines about high vacancy rates in commercial real estate (office space), the retail real estate sector is experiencing the best occupancy rates ever! According to a recent report from Cushman & Wakefield, the nationwide vacancy rate for retail is now at a record low of 5.4%. In addition, there will be a historically low amount of new retail space developed in 2023. As a buyer specializing in value-add strip malls, this news is fantastic. At 507 Capital, we have recognized for years that retail real estate is an extraordinary asset class and full of opportunity. Seeing these statistics only reaffirms that my partners and investors have continued to make the right choice in selecting retail as our preferred asset class within the commercial real estate (CRE) market.

Shifting retail location strategies and high financing and construction costs are shaking up demand for space. Read more about our Q2 Figures Report from Retail Dive: https://lnkd.in/gKZDHJqP

RETAIL ROUNDUP 💫 Lack of New Supply The retail real estate market thrives on sturdy foundations: positive net absorption, climbing rents, and reduced vacancies, all stemming from limited new supply. Retail deliveries have hit unprecedented lows in the last three years, a trend expected to persist in 2023. Since 2003, over 50 million sq. ft. of retail space vanished, with 10 million sq. ft. gone in the last five years. This trend continues in 2023, as struggling enclosed-mall owners transition properties into mixed-use developments. (*Source: CBRE, Q1 2023) #retailinvestment #realestate #retailroundup #retail #limitedsupply #absorption

The retail real estate market in Washington State and the greater Pacific Northwest is in a unique position; our low inventory of quality space combined with buyer demand and depth of investor capital is creating insulated pricing. In Q1, pricing for retail properties remained near historic highs, which is fantastic news for property owners and sellers. However, the real story lies in the price sensitivity we're seeing, particularly for assets over $6 million. This sensitivity is largely driven by the current interest rate environment. Buyers are becoming more discerning, especially when financing new debt. For those looking at multi-tenant shopping centers, it's an exciting time. In my 13 years in this industry, I've never seen such strong buyer demand. Investors from other asset categories like apartments, industrial, and office are flocking to retail. The triple net lease structure is a big draw, providing insulation from rising operating costs—a significant advantage in today's inflationary climate. When it comes to single-tenant properties, demand remains robust, particularly for those priced at $4 million and below. Buyers are more price-sensitive here, focusing on properties with cap rates of 5% and above. The days of easily selling at 4% cap rates are behind us unless the property is truly exceptional. Now, let's address development and construction. High construction costs, along with challenging zoning and geographical constraints, have slowed retail development to a trickle. This limited new supply is a double-edged sword—it means less competition for existing properties but also fewer new opportunities. Despite these challenges, the fundamentals of retail in our region are incredibly strong. Vacancy rates are low, tenant demand is high, and we're seeing strong leasing interest in previously vacant spaces like former Rite-Aid and Bartell Drugs locations. For the next few quarters, I expect pricing to remain favorable for sellers, and there's STILL hope that interest rates might decrease later this year, potentially boosting activity. As always, if you have any questions or want to discuss the market in more detail, please reach out. Thanks for reading, and I look forward to hearing your thoughts and feedback! #pnwrealestate #retailrealestate

The data speaks for itself - retail real estate is as strong as ever

Necessity retail real estate is historically strong! With U.S. shopping center vacancies falling to just 5.3% in Q4 2023, landlords are seeing high tenant demand for any remaining vacant space.    The Wall Street Journal subscribers can read more from Jim Dillavou, our National Head of Retail Investments & Retail Capital Markets, and the demand for prime retail space in Kate King’s coverage here: https://lnkd.in/eC3sZtVg    #Retail #RealEstate 

"Demand for retail is surging in Dallas-Fort Worth as a dearth of new construction and minimal vacancies stir up competition for available space. Net absorption nearly tripled between the first and second quarters from 396.5K SF to 956.5K SF, according to new data from Partners, which includes any lease of more than 5K SF in its reporting. Vacancy also tightened to 4.8%, down from 4.9% in Q1." https://lnkd.in/gyY23w4C #landsales #landinvestment #dfwrealestate

The U.S. retail real estate vacancy rate tumbled five basis points from the second quarter to the third and 40 basis points year over year to 5.4%, the lowest since Cushman & Wakefield’s dataset began, in 2007. This tight nationwide vacancy level pushed the average asking rents even higher in competitive markets. #cre #commercialrealestate #retail

Retail rents are on the rise. A shift in location strategies by retailers and high financing and construction costs are shaking up demand for space. Stats from our Q2 Retail Report are available now. #madisonrealestate #madisonwisconsin https://lnkd.in/gABM9vVq

HOW TO TELL IF WE ARE ENTERING A "LANDLORD MARKET"... 📉 Retail recalibration: Retail bankruptcies and closures have reset the U.S. retail market. 🏬 Record-low vacancies: U.S. retail vacancy rates have hit a record low of 4.1% in Q1 2024. 🚧 Demolition surge: 155M SF of retail space demolished over the past five years. 🏢 New developments: Minimal new retail space added; only 500M SF in the last decade. 🛑 Tight market: Retail space is scarce, making it difficult for tenants to find affordable space. 💵 Rent growth: Nationwide asking rents up by 2.9%, reaching a new high of $25 per SF. 🔄 Landlord’s market: Transition from a tenants’ market to a landlord’s market. 🏗️ Construction slowdown: Retail construction activity has fallen by two-thirds since the Great Financial Crisis. 💼 Non-retail occupancy: Increase in non-retail uses, such as healthcare, occupying former retail spaces. 📈 Retail demand: Retailers emerged strong from Covid-19 with aggressive growth plans, leading to competition for limited space. ⛔ Expansion limits: Rising costs and limited space are capping retail expansion. 📉 Future outlook: New retail space deliveries expected to remain low until at least 2028. 🔍 Market caution: High interest rates, construction costs, and shadow inventory are holding back retail development. 🛒 Competition: Struggling retailers and competitive product impact new retail developments. #RetailRecalibration #RetailMarket #CommercialRealEstate #RetailVacancy #RetailDemolition #RetailDevelopment #RetailSpace #RetailTrends #RealEstateNews #RetailGrowth #RetailExpansion #CRE https://lnkd.in/gTsppGR8