Real Estate and the Retail Industry

Colliers International, a global real estate services firm, issued its 2010 Retail Trends and Opportunities report showing that retail vacancies will stabilize in many markets this year, but new retail construction has virtually disappeared and lease rates have dropped 25-40% from peak levels.

Challenges abound in the retail marketplace, and we’ll witness more retail failures, more bankruptcies, and more store closures ahead. But the good news is that amid this landscape, consumer sentiment and spending will begin to improve, bolstering the retail sector and re-igniting deal activity. According to Colliers’ research, there are more retail space-users making moves in the market today than there were a year ago, and Colliers predicts these numbers will only increase going forward.  

“It appears that retailers will likely face a period of years during which wave after wave of troubled assets will gradually be returned to the marketplace,” said Garrick Brown, Colliers International’s U.S. retail research director and complier of 2010 Retail Trends & Opportunities.  “This will result in further pricing drops, but retail space values have already taken the lion’s share of the declines that can be expected.  Retail real estate is entering into what’s best described as a ‘not so fast recovery.'”

Top-line findings from Colliers International’s 2010 Retail Trends & Opportunities follow.  

  • Year of the Pop-up: one of the bright spots in retail has been the emergence of pop-up or temporary retail space. The entry of trendier retailers into the pop-up game has bolstered landlords’ willingness to do very short-term leases.
  • Cheaper rents translate into more urban activity: Urban storefront rents have dropped across the board, and consequently, many retailers previously priced out of such markets are uncovering opportunities, especially in New York City, where street-front rents have dropped as much as 40%.
  • Strip center landlords thank heaven . . . . for 7-Eleven, the clear U.S. leader in retail store count by sheer number of stores. While serving a vital role as a strip center “mini anchor”, 7-Eleven is also making moves to expand into both additional urban and suburban spaces.
  • Dollar Daze! Nowhere in the retail world are we seeing more growth than from the dollar stores, and dollar store chains such as Dollar General, Family Dollar and Dollar Tree should emerge as the strongest growth sector in retail over the course of the year. One trend that could have strong implications for the success of the dollar stores (and the challenges for traditional grocers) is the continued addition of food items by many chains.
  • Drug stores and Target will enter grocery fray: Adding to the dollar store pressure just noted, drug stores such as Walgreens, convenience store leader 7-Eleven and category-killer Target have all been aggressively adding grocery store components to their stores. Speaking of Target, it will also explore a smaller-store concept so it can capitalize on urban growth opportunities.
  • Shuttered video stores add to retail vacancy, and bookstores continue to struggle: The result of these flailing formats could add millions of square feet of additional retail vacancy throughout the U.S. over the next few years.
  • Restaurants (especially quick service and casual) a bright spot: As part of the new frugality, fast-food and fast casual operators with lower price points have fared better and will be in expansion mode throughout 2010. M&A will be on the rise, and a significant number of restaurants that operate within the franchise model are expected to add to their unit numbers.

“Despite ongoing challenges, the retail market is beginning to get a bit of a reprieve from the lashing it took in 2009,” said Pat Duffy, chairman of Colliers Retail Services Group.  “Conditions are now ripe for a ‘flight to quality.’  With rents down by at least a third on average, the first-mover active users of retail space are seeking out top retail locations for deals.  In line with this, we predict urban storefront retail may begin to show signs of stabilization by year-end.”

SOURCE Colliers International



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