CBRE U.S. Retail MarketView - Savant Investment Partners

U.S. Retail
MarketView
Q3 2014
AVAILABILITY RATE
11.5%
CBRE Global Research and Consulting
NET ABSORPTION
7.0 MSF
COMPLETIONS
2.2 MSF
Q-o-Q TOTAL RETAIL SALES
1.0%
Arrows indicate change from previous quarter.
RETAIL RECOVERY MOVES FORWARD IN THIRD QUARTER
Executive Summary
•Total retail sales expanded by a
healthy 4.5% year-over-year in Q3
2014—consistent with the growth
of 4.6% recorded in Q2 2014.
•Average monthly job growth
decelerated to 234,000 in Q3
2014, down from the previous
quarter’s monthly average of
267,000.
•Positive net absorption continued
in Q3 2014, with neighborhood,
community and strip center tenants
absorbing almost 7.0 million sq.
ft.
•Third quarter completions brought
2.2 million sq. ft. of new space to
the market, or 0.1% of the current
stock—less than what was added
one year prior.
•The national neighborhood,
community and strip center retail
availability rate dropped 20 basis
points quarter-over-quarter, to end
Q3 2014 at 11.5%.
•The average asking rental rate
grew by 0.3% over the same
period for neighborhood,
community and strip centers.
The U.S. retail recovery continued in Q3
2014, with fundamentals not changing
much from Q2 2014. With the holiday
shopping season approaching, consumers generated quarterly retail sales near
the historical average; compared to a
year earlier, core retail sales showed
growth of 4.2%—similar to the 4.1%
recorded in Q2 2014. Sales growth
at these rates should keep retailers
confident in the expansion. The caveat
is that smaller stores and omni-channel
strategies will hold this expansion to a
pace below those of previous cycles.
Absorption at neighborhood, community
and strip centers was 7.0 million sq. ft.
in Q3 2014—slightly below the previous
quarter’s tally of 7.4 million sq. ft. Fullyear net absorption for 2014 is on track
to exceed the 2013 figure. Completions
for neighborhood, community and strip
centers were comparable to Q2 2014
levels, totaling around 2.2 million sq.
ft. With a slight acceleration over the
remainder of 2014, annual completions
are forecast to exceed those of 2013,
but to be well below the historical
average. Improving net absorption and
lower completions will help availability
rates continue to decline.
The U.S. availability rate for neighborhood, community and strip centers was
11.5% in Q3 2014, having dropped
20 basis points (bps) compared to Q2
2014. With a post-recession peak of
13.2%, recorded in 2011, it will take
some time for the rate to recover to
2007 levels, particularly as this demand
recovery is projected to be muted
compared to previous ones. Absorption
is expected to be strong enough to
bring availability down further; the rate
is forecast to drop to 11.3% by the end
of 2014. Quarter-over-quarter, rent
growth at neighborhood, community
and strip centers was 0.3% in Q3 2014.
With rents growing in the final quarter
of 2014, this year should see the first
annual rent growth since the recession.
© 2014, CBRE, Inc.
ECONOMIC TRENDS
OUTLOOK REMAINS BRIGHT WITH RETAIL SALES GROWING
Q3 2014
long-run average. According to the most recent figures from
the Conference Board, consumer confidence is at its highest
level so far this year.
U.S. Retail | MarketView
Employment and personal income, the two main economic
drivers of space demand at neighborhood, community and
strip centers, both continued to recover in Q3 2014.
Year-over-year, the growth rates they recorded were slightly
diminished, but that was not enough to derail their recoveries.
Total employment grew at a year-over-year rate of 1.7%, while
personal income grew by 3.9%. Following a strong dip in Q4
2013, personal income growth returned to a stronger trend in
the first half of 2014. Such growth in jobs and income will spur
confidence in consumers, supporting their willingness to shop.
Among the retail sales segments, motor vehicles continued
to dominate. Growth in auto sales continues to be a primary
reason for the divergence between total and core retail sales
performance. Meanwhile, the housing-related retailers—electronics and appliance stores, furniture and building materials—
are receiving a boost from the housing recovery; consumers
are slowly reinvesting in their homes. Stronger sales growth in
health and personal care, and improving food and beverage
sales are positives for drugstores, grocery stores and other
sellers of consumer staples. For discretionary retailers, sales
of clothing and accessories and sporting goods and hobbies
grew less in Q3 2014 than in Q3 2013—a comparison that
was true of Q2 2014 as well. E-commerce remains a leading
category, but continues to represent a small portion, 8%, of
core sales.
In Q3 2014, retail sales growth continued at the pace set in
Q2 2014. Total retail sales grew by 4.5% year-over-year, just
about matching the 4.6% growth recorded in the prior quarter.
Core retail sales growth, which excludes auto and gasoline
sales, accelerated slightly to 4.2% from the 4.1% recorded
in Q2 2014, but still trailed overall retail sales growth. In
Q3 2014, with consumers looking ahead to the holidays,
core retail sales growth continued to hover within range of its
Figure 2: Retail Sales Growth by Segment
Ranked by Q3 2014 Y-o-Y Growth
Figure 1: Employment and Personal Income
Y-o-Y Growth (%)
Employment
0%
Personal Income
8
6
4
2
0
-2
-4
-6
10%
14
20
14
Q3 2014
Source: U.S. Census Bureau, Q3 2014.
*E-Commerce as of Q2 2014.
Q3
13
20
Q1
13
20
Q3
12
20
Q1
12
20
Q3
11
20
Q1
11
20
20
Q3
10
Q1
10
20
20
Q3
09
Q1
09
20
20
Q3
08
Q1
20
Q3
20
08
-8
Q1
5%
15%
20%
E-Commerce*
Motor Vehicles & Parts Dealers
Food Services & Drinking Places
Health & Personal Care
Building Materials
Electronics & Appliances
Food & Beverage
Clothing & Clothing Accessories
General Merchandise
Furniture & Home Furnishings
Sporting Goods, Hobby, Book & Music
Source: BLS, BEA, CBRE Econometric Advisors, Q3 2014.
Q3 2013
Figure 3: Retail Sales Growth
Retail Sales Growth (%)
Total Y-o-Y
Core Y-o-Y
10
5
0
-5
-10
14
14
20
Q3
20
14
Q2
13
20
Q1
20
13
Q4
13
20
Q3
20
13
Q2
12
20
Q1
20
12
Q4
12
20
Q3
20
12
Q2
11
20
Q1
20
Q4
11
11
20
Q3
20
Q2
11
20
Q1
10
20
10
Q4
10
20
Q3
20
Q2
10
20
Q1
09
20
Q4
09
20
Q3
09
20
Q2
20
09
-15
Q1
2
Note: Core retail sales excludes motor vehicles and parts dealers and gasoline.
Source: U.S. Census Bureau, Q3 2014.
© 2014, CBRE, Inc.
DEMAND AND SUPPLY TRENDS
DEMAND RECOVERY CONTINUES BUT REMAINS MUTED
Markets with the strongest absorption rates in Q3 2014 were
Houston, New York, Portland and San Francisco; each of these
markets recorded absorption rates of 0.5% or more—well
above the national rate of 0.2%.
U.S. Retail | MarketView
but the former also recorded negative demand—for a second
consecutive quarter—posting 350,000 sq. ft. of negative net
absorption. Demand for space in power centers remained positive, but was less than half of what was recorded a year earlier.
The omni-channel environment is forcing retailers to become
more selective, and to adjust their brick-and-mortar space to
adapt to changes in the retail landscape.
Q3 2014
Net absorption diminished slightly from its Q2 2014 level
during Q3 2014, but was well above its level of a year earlier.
Retailer demand for neighborhood, community and strip
centers grew by 0.2%, to 7.0 million sq. ft. of absorbed space.
The consistent year-over-year growth in core retail sales is an
indication that consumers remain confident enough to continue
their recent spending patterns, which will allow retailers to
demand space at a slightly faster pace through 2015. The
number of markets whose absorption rates increased in Q3
2014 was the same as it had been a year earlier. A majority of
markets, 45 out of 63, saw demand for space remain positive.
Not all center types fared as well in Q3 2014. Lifestyle centers
and malls and power centers saw declines in net absorption,
Figure 4: Neighborhood, Community and Strip Center Net Absorption and Availability Rate
Net Absorption (MSF)
Net Absorption (L)
Availability Rate (%)
Availability Rate (R)
14
30
12
20
10
10
8
0
6
-10
4
-20
2
-30
0
Q1
2
Q2 004
2
Q3 004
2
Q4 004
2
Q1 004
2
Q2 005
2
Q3 005
2
Q4 005
2
Q1 005
2
Q2 006
2
Q3 006
2
Q4 006
2
Q1 006
2
Q2 007
2
Q3 007
2
Q4 007
2
Q1 007
2
Q2 008
2
Q3 008
2
Q4 008
2
Q1 008
2
Q2 009
2
Q3 009
2
Q4 009
2
Q1 009
2
Q2 010
2
Q3 010
2
Q4 010
2
Q1 010
2
Q2 011
2
Q3 011
2
Q4 011
2
Q1 011
2
Q2 012
2
Q3 012
2
Q4 012
2
Q1 012
2
Q2 013
2
Q3 013
2
Q4 013
2
Q1 013
2
Q2 014
2
Q3 014
20
14
40
Source: CBRE Econometric Advisors, Q3 2014.
Figure 5: Net Absorption By Center Type
Net Absorption (MSF)
Q3 2013
Q3 2014
8
7
6
5
4
3
2
3
1
0
-1
Neighborhood, Community and Strip
Source: CBRE Econometric Advisors, Q3 2014.
© 2014, CBRE, Inc.
Lifestyle and Mall
Power
DEMAND AND SUPPLY TRENDS
COMPLETIONS REMAIN WELL BELOW LEVELS RECORDED OVER THE LAST FIVE YEARS
Q3 2014
U.S. Retail | MarketView
Neighborhood, community and strip centers saw a steady
addition of new supply in Q3 2014, with 2.2 million sq. ft.
completed. This figure shows decline compared to the previous
quarter, and represents construction that is still well below
pre-recession levels. The muted nature of the retail recovery is
evident in the other major center types as well—power centers
saw new supply decrease from Q2 2014, with completions
amounting to half the space delivered in the prior quarter.
Completions are expected to remain well below the pre-recession peak levels that were set in 2005 and 2006 as developers
factor in recent retail trends, such as the reduction in the size
of stores. For lifestyle centers and malls, 1.5 million sq. ft. of
completed space entered the market in Q3 2014; completions
in 2014 are expected to surpass those of 2013.
In Q3 2014, the nation’s highest completions rates for neighborhood, community and strip centers were noted in Charlotte,
Orlando, Columbus, Portland, San Jose and New York—at
0.2% and higher. Given that developers are still figuring out
how to navigate the post-recession retail environment, it is
not a surprise that almost two-thirds of the markets we track
recorded no new supply for the quarter.
Over the next two years, only 11 markets—among them,
Houston, San Jose, Miami, Charlotte, Fort Worth and Austin—
are expected to record completions rates of 1% or higher.
While these rates will be above average among U.S. markets,
they remain percentage points below their historical averages.
Figure 6: Completions By Center Type
Completions (MSF)
Average: 2005-2013
2014
40
35
30
25
20
15
10
5
0
Neighborhood, Community and Strip
Lifestyle and Mall
Power
Source: CBRE Econometric Advisors, Q3 2014.
Figure 7: Neighborhood, Community and Strip Center Net Absorption and Completions
Absorption/Completions (MSF)
Absorption Q1
Absorption Q2
Absorption Q3
Absorption Q4
Completions
80
60
40
20
0
4
-20
-40
2008
2009
2010
2011
2012
2013
2014 YTD
Source: CBRE Econometric Advisors, Q3 2014.
© 2014, CBRE, Inc.
AVAILABILITY AND RENTS
AVAILABILITY RATES CONTINUE TO DECLINE
Q3 2014
Jacksonville, Richmond and Houston have all seen their rates
fall 100 bps or more. Most markets saw availability improve
over that period; flat or increasing rates were recorded in just
15 markets.
As of Q3 2014, the national average rent at neighborhood,
community and strip centers was $18.70 per sq. ft., reflecting
a quarter-over-quarter increase of 0.3%. Though this was the
fifth consecutive month of rent increases, it will take some time
to return to 2007’s pre-recession peak level. Overall, rents will
not be expanding until 2017; by that time it will have taken 10
years from peak-to-peak. The quarter’s strongest rent growth
was recorded in San Francisco, San Jose, Los Angeles, Boston
and Houston.
U.S. Retail | MarketView
The availability rate at neighborhood, community and strip
centers continues to recover from its post-recession peak of
13.2%; consistent demand gains have helped to spur availability rate declines over the past several quarters. The Q3 2014
availability rate of 11.5% represents a quarter-to-quarter drop
of 20 bps and a year-over-year drop of 70 bps. With current
rates comparable to those of Q1 2009, the pre-recession low,
set in 2005, is still some distance off. We also saw declines in
the availability rate of power centers—40 bps from year-earlier
figures—but lifestyle centers and malls were up 10 bps on a
year-over-year basis and 20 bps, quarter-over-quarter, demonstrating the relative volatility of the recovery in the lifestyle and
mall category.
Some of the past year’s largest availability rate declines
were recorded in markets in the South—Tampa, Charlotte,
Figure 9: Neighborhood, Community and Strip Center
Rent Performance Forecast
Figure 8: Availability Rates By Center Type
Availability Rate (%)
Rent Growth (%)
Rent ($/SF)
-4
0
-6
Lifestyle and Mall
20
15
10
Forecast
5
20
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
0
Q3
20
Q1
20
Q3
20
20
Q1
Q3
20
20
Q1
Q3
20
Q1
20
Q3
20
Q1
20
20
Q3
Q1
20
20
Q3
Q1
Neighborhood, Community and Strip
14
2
14
-2
13
4
13
0
12
6
12
2
11
8
11
4
10
25
10
10
6
09
12
09
30
08
8
08
14
Rent Growth
Power
Rent Index: Nominal
Rent Index: Real
Source: CBRE Econometric Advisors, Q3 2014.
Source: CBRE Econometric Advisors, Q3 2014.
Figure 10: Neighborhood, Community and Strip Center Rent Performance History
Q-o-Q Growth (%)
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
5
-1.4
Source: CBRE Econometric Advisors, Q3 2014.
© 2014, CBRE, Inc.
14
20
20
14
Q3
20
14
Q2
20
13
Q1
13
Q4
20
13
Q3
13
20
20
Q2
20
12
Q1
20
12
Q4
20
12
Q3
12
Q2
20
11
Q1
20
20
11
Q4
11
20
Q2
Q3
11
20
20
10
Q1
10
Q4
20
10
Q3
20
20
10
Q2
09
Q1
20
09
Q4
Q3
20
09
Q2
20
09
Q1
20
08
Q4
20
08
Q3
20
08
20
Q2
Q1
20
08
-1.6
MARKET OUTLOOK
FIRST FULL YEAR OF RENT GROWTH IN SIX YEARS IS EXPECTED IN 2014
Q3 2014
U.S. Retail | MarketView
Net absorption will continue to improve as we head closer to
2015, supported by employment, which has already surpassed
its previous peak level. Net absorption is expected to be
around 32 million sq. ft. in 2014—close to 2007 levels and
keeping with the accelerating trend that demand has exhibited
since the recovery began. Due to the influence of omni-channel
trends on the retail industry, absorption is anticipated to be
muted in comparison to levels recorded in 2005 and 2006.
The number of projects underway indicates that completions
will increase slightly in 2014. For neighborhood, community
and strip centers, completions of around 13.3 million sq. ft. are
forecast—27% above 2013’s deliveries, but less than the 14
million sq. ft. averaged over the past five years. Once retail’s
first full year of rent growth since the downturn is recorded this
year, completions should begin to ramp up again—though they
are not expected to come anywhere near their pre-recession
peak. Over the next five years, completions should average
about half of what they were prior to the recession.
Availability rates are expected to continue to decline in 2014.
By the end of the year, the availability rate among neighborhood, community and strip centers is forecast to be 11.3%—
down 70 bps from the year-end 2013 rate. The decline in
availability will continue to be helped by improving absorption
and minimal supply additions; we forecast that availability will
reach 9.1% by the end of 2016.
The consistent decline in availability that began several quarters ago will continue to justify overall rent growth in 2014. At
1.3% for the year, this rent growth will be small, but it will help
to regain some of the downturn’s 16% loss. After 2014, with
the employment expansion underway, annual rent growth rates
are projected to look more like pre-recession rates—approaching or exceeding 5%. As such, the transition to rent expansion
should come in 2017, as forecasts have anticipated.
Figure 11: Neighborhood, Community and Strip Center Retail Forecast
Absorption/Completions (000s Sq. Ft.)
Completions (L)
Net Absorption (L)
Availability Rate (%)
Availability Rate (R)
100,000
14
Forecast
80,000
12
19
20
18
20
17
20
16
20
15
20
14
20
13
20
12
20
20
20
20
20
20
20
20
20
20
20
20
20
11
0
10
-40,000
09
2
08
-20,000
07
4
06
0
05
6
04
20,000
03
8
02
40,000
01
10
00
60,000
Source: CBRE Econometric Advisors, Q3 2014.
6
© 2014, CBRE, Inc.
VIDEO BRIEFING
Q3 2014
Anthony Buono, Executive Managing
Director of Americas Retail Services,
discusses the performance of the U.S.
retail market during Q3 2014.
U.S. Retail | MarketView
CONTACTS
For more information about this U.S. Retail MarketView, please contact:
Anthony Buono
Executive Managing Director
Retail Services, Americas
CBRE
t: +1 619 696 8302
e: anthony.buono@cbre.com
Todd Caruso
Senior Managing Director
Retail Agency Services, Americas
CBRE
t: +1 847 572 1480
e: todd.caruso@cbre.com
Spencer G. Levy
Americas Head of Research
Global Research and Consulting
t: +1 410 951 8843
e: spencer.levy@cbre.com
Abby Rosenbaum
Senior Economist
CBRE Econometric Advisors
t: +1 617 912 5236
e: abigail.rosenbaum@cbre.com
Ian Anderson
Director of Research and Analysis
CBRE Research
t: +1 215 561 8997
e: ian.anderson2@cbre.com
Nadine Jones
Senior Research Analyst
CBRE Econometric Advisors
t: +1 617 912 5242
e: nadine.jones@cbre.com
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GLOBAL RESEARCH AND CONSULTING
This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a
network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric
forecasting and consulting solutions to real estate investors and occupiers around the globe.
Additional U.S. research produced by Global Research and Consulting can be found at www.cbre.us/research.
DISCLAIMER
Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we
have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and
completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be
reproduced without prior written permission of CBRE.
© 2014, CBRE, Inc.
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