There’s been surprising
growth in the real estate, retail sales and retail investment markets as of
late. But does this mean long-term recovery is in the cards for the region as a
whole?
Smart Business spoke with
John M. Leonard, first vice president and regional manager of the Atlanta
office of Marcus & Millichap Real
Estate Investment Services, to learn more.
In light of the holiday
season and the steadily improving commercial real estate market, what are your
predictions for retail sales and the retail investment market?
Nationwide, core retail sales
fell steeply between mid-2008 and mid-2009 but have since staged a recovery to
pre-recession levels, with further gains anticipated through the holidays.
While sales have surpassed previous peak levels, nearly one-third of the
recovered gains have come from e-commerce. Since the trough in monthly retail
sales in December 2008, online retail sales climbed nearly $5.6 billion at the
expense of many traditional retailers. Drugstores, grocery stores, and
restaurants and bars also account for outsized shares of the increase, while
clothing stores, building supply dealers and furniture retailers posted the
weakest gains.
Having reached a high of 10.3
percent nationwide in the first quarter of 2010, U.S. retail vacancies are
starting to decline, albeit modestly. They currently stand at 10.2 percent.
Effective rents are starting to firm as well. The drop in vacancy is expected
to accelerate over the next 18 months, and effective-rent growth will occur as
early as spring 2011. Per-square-foot pricing would follow a similar pattern.
One concern, however, is whether the retail recovery this time will be as rapid
and prolonged as previous recoveries. The lack of any significant job and
income growth suggest that this time, it may be a slower recovery.
How have growth in
e-commerce and the fallout from the recession impacted consumers and retai
lers?
The recession has given way
to a structural shift in shopping behavior that could change the retail landscape
for years to come. As job losses mounted and budgets tightened, consumers
became more price-conscious, and many discovered lower-price alternatives, such
as discount chains and online stores. As the economic recovery gains momentum,
consumers may have little incentive to revert to previous shopping habits.
While major discount chains will continue to expand, more mom-and-pop
retailers, which have already lost sizable market share, will be pushed to the
edge. Marginal chains and those that fail to offer a competitive advantage to
brick-and-mortar powerhouses or Internet-based services, such as movie rental
chains or music stores, will also face steep challenges.