CBRE Forecast: US Retail Real Estate to See More Evolution, Gains in 2018
25 Jan 2018
Disruption caused by e-commerce and demographic shifts will reshape U.S. retail real estate in 2018, leading to more collaboration between retailers and landlords, more discounting by mid-market retailers and a widening performance gap between the best retail centers and runners up, according to CBRE’s 2018 U.S. Real Estate Market Outlook.
The U.S. retail industry has been in flux for several years as e-commerce sales grow sharply and retailers adapt to best serve customers both in stores and online. This has resulted in retailers enlisting data analytics to pinpoint the best locations for their new stores rather than opening as many as possible, which in turn has contributed to many of the trends unfolding in the market today.
“This year has started strongly for retailers and owners of retail centers, given the momentum generated by a robust holiday season, low unemployment and healthy consumer confidence,” said Brandon Famous, CBRE Americas Retail Leader overseeing the company’s retailer-representation practice. “We see continued shopper affinity for discount and off-price retailers, emerging brands, food and beverage, and retailtainment.”
CBRE sees solid rent growth occurring in non-gateway markets over the next five years due to their employment and population growth and their available runway for rent gains. Developers and investors will find those markets attractive this year and beyond, specifically in cases of urban-core redevelopment and suburban mixed-use development. In 2018, CBRE predicts solid rent growth of at least 2.5 percent in markets such as Atlanta, Houston, Nashville and Denver.
Meanwhile, retail-center investors will enhance their properties by improving their customer experience, be it through design, decor, events, tenant mix or customer-service initiatives, among many options. Particularly in B-grade centers needing to take dramatic steps, this can involve adding nontraditional tenants such as entertainment uses and nonretail tenants such as fitness and healthcare operators.
Additionally, retail landlords will seek to foster unique environments at their centers by collaborating with their retailers. That can include landlords setting aside space for pop-up shops that might eventually become permanent tenants, sharing data with retailers to improve marketing, or taking equity stakes in start-up tenants in exchange for defraying their occupancy costs.
As the gap between A-grade and B- and C-grade centers widens, CBRE foresees opportunities arising for opportunistic investors willing to redevelop, reposition and re-lease certain struggling centers.
Shoppers, meanwhile, increasingly will favor either discount and off-price retailers or luxury retailers. In turn, midmarket retailers will discount prices to avoid losing marketshare to their discount competitors.
“The U.S. retail industry is evolving rapidly, but it isn’t receding,” said Todd Caruso, Senior Managing Director leading CBRE’s support of all real estate needs of retail Investors and Owners. “Headlines likely will continue to focus on the fallout. But what gets less fanfare, though it is more significant, is the growth of discounters, new concepts and international retailers, as well as successful transitions by many retailers to become truly omnichannel operations.”
To read CBRE’s 2018 U.S. Real Estate Market Outlook, click here.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.