As Retail Rebounds Investor Confidence Returns
Retail, especially non-essentials goods and services, was hit hard during the pandemic, but with an increase in vaccinations and easing restrictions, retail is experiencing increased investor favor and returning to pre-pandemic levels. This is evidenced by a bounce-back in retail real estate transaction volumes. Additionally, the U.S. retail debt market remains liquid, including in Denver and the state of Colorado.
“We have experienced increased investor demand for retail assets across the entire state of Colorado,” said Managing Director Jason Schmidt in JLL Capital Markets’ Denver office. “The last decade has been a time of strong job and population growth for us; however, the growth in new construction for retail has been historically low. The result has been healthy retail dynamics. With the quality of life in Colorado, this looks like it will only improve has people continue to move to our state.”
While grocery-anchored retail continues to dominate investment sales with the lowest levels of vacancy, the total U.S. retail transaction volume has topped $10.7 billion for assets over $5 million year-to-date through May, and community and neighborhood centers have the highest trade volume of that total. Even with the popularity and insultation of the sub-sector, all retail segments, including malls and power centers, stand to benefit from investor demand returning to retail.
“Investors are gaining confidence and they are going out on the risk spectrum to look for additional yield, which means branching out to other retail product types,” added Senior Managing Director Chris Angelone, JLL’s retail co-leader in capital markets. “Other categories of retail are performing well, as retailers’ balance sheets are healthier than they were pre-pandemic.”
Along with the release of unprecedented pent-up demand, sooner-than-anticipated re-openings have eased investor concerns over the long-term health of both retail tenants and the retail property sector at-large. This increased confidence is also demonstrated in the uptick in investor demand occurring in most markets across the country.
“We have seen increased investor demand in not only major markets but also secondary markets for quality essential assets, as well as value-add offerings,” said Senior Managing Director Barry Brown, JLL’s retail co-leader in capital markets. “This interest level in retail has expanded from primarily grocery in 2020 and now includes larger-format retail power centers.”
Recently, the U.S. Census Bureau released its advanced monthly retail trade report, and with economic growth strong and retail foot traffic seeing steady gains, May 2021 saw a 28.1 percent increase year-over-year. Additionally, the apparel category saw its sales jump 200.3 percent from May 2020, while the food and beverage segment saw a 70.6 percent increase from last year. Overall, the year-over-year comparison shows a robust rebound in May.
“Retailers are beginning to feel a sense of relief just in time for summer activities,” said Naveen Jaggi, president of Americas Retail at JLL. “We can expect consumer confidence to continue to make gains as more people return to the office, socialize, shop and eat at their favorite local restaurants.”
The National Retail Federation predicts retail sales will grow between 10.5 and 13.5 percent in 2021, which will continue to positively impact commercial real estate and that includes that U.S. retail debt market, which remains liquid.