By Victor Calanog
VICE PRESIDENT OF RESEARCH AND ECONOMICS, REIS INC.
is The re Tail recovery here?
In this past April’s Property TypeCast ( sctsm.in/5032), we suggested that retail fundamentals
appeared to be turning the corner. Results from this past first quarter indicate that the retail
recovery may have finally arrived.
Occupied stock in neighborhood and community shopping centers increased by 3.141 million
square feet this past first quarter. This is the second-largest positive value for net absorption
since the sector began losing occupied space in first-quarter ’08 — the largest gain occurred in
the previous quarter.
Vacancies began to fall in
the first quarter, declining
by 10 basis points to end
at 10. 9 percent. In the lead-up to the recession, excess
building was to blame for
the increase in vacancies.
Since the advent of the recession, supply growth has
been virtually nonexistent,
but negative net absorption drove vacancies upward. With supply growth
remaining at minimal levels, the swing back to positive net absorption finally reached the tipping point for vacancy this past first quarter.
Source: Reis Inc.
NEIgHBORHOOD AND COMMuNI Ty SHOppINg CENTER TRENDS
Asking and effective rents increased by 0.1 percent, in line with the changes from fourth-quarter ’ 11. This is the second consecutive quarter of rent increases and another cautiously
optimistic sign for neighborhood and community centers. All these indicators are positive, yet
lukewarm. A nascent recovery may be underway, unless external shocks force U.S. economic
growth to reverse course.
Larger properties, like regional malls, posted relatively healthy results this past first quarter,
with national vacancies declining 20 basis points to 9 percent. This was the second consecutive
quarter of vacancy declines.
Asking rents grew by
0.2 percent, marking the
third consecutive quarter
of rent increases. Although
regional malls are faring
better than neighborhood
and community centers
at this juncture, this has
as much to do with supply as demand. Although
demand for malls, particularly higher-quality malls,
is arguably stronger than
demand for neighborhood
space, regional malls did not experience massive supply increases before the recession the
way neighborhood and community centers did.
Source: Reis Inc.
REgIONAL AND SupER REgIONAL MALL TRENDS
Although demand drivers like increasing retail sales have helped, the dominant variable fueling the retail sector’s nascent recovery is constrained building. From 1999 to 2008, an average
of 29 million square feet of new shopping-center space came online per year. That plunged to
13 million square feet in 2009 and remained low throughout ’ 10 and ’ 11.
More than two years ago, our forecasts suggested that retail vacancies could rise all the way
through 2011, emphasizing how the sector was being battered by forces of historic magnitude
( sctsm.in/3476). It is useful to look back and note how the sector has gotten past the worst and
may be on its way up from the bottom. We are not projecting a V-shaped recovery, however, and
dark clouds remain on the horizon. Reis expects the U.S. economy to grow at a modest 2. 5 percent this year, which means we shouldn’t expect much of a boost from retail spending. Few retail
tenants have plans to expand significantly, and many are still closing stores. But because the
sector doesn’t have much of a supply glut, vacancies are starting to come down slowly.
Victor Calanog, vice president of research and economics at Reis Inc. ( www.reisreports.com), writes a monthly column
on property types for Scotsman Guide. He and his team of economists are responsible for data models, forecasting,
valuation and portfolio services for clients in commercial real estate. Reach him at firstname.lastname@example.org.
Juan Bayas, retail analyst for Reis’s quality control department, contributed to this article.
Thomas S. Bozzuto CHAIRMAN ATIONAL MULTI HOUSING COUNCIL
BY RANIA OTEIF Y
Homeownership may be the American dream, but living
in rental housing is today’s reality. According to the National Multi Housing Council (NMHC), nearly one-third
of American households rent, and more than 14 percent
of households live in rental apartments. We spoke with
NMHC Chairman Thomas S. Bozzuto about his priorities
for the council during his two-year term as chair, as well as
his perspective on overall multifamily-market conditions.
What’s your outlook for multifamily?
At least for the next several years, the multifamily rental
industry will continue to be strong and get stronger. As
we have recovered from the recession, all over the country rents are up, occupancy is up. That has been driven
more by the change in the ratio of renters to home-owners than anything else. There will be more of that.
Furthermore, the Generation Y population, which has
doubled up and which stayed in their parents’ basements during the recession, will be now entering — as
they get jobs — the apartment market in force.
The biggest single risk [to recovery] is job growth. We
need the economy to continue to recover. If that happens, we will continue to see growth in our industry.
Do current multifamily starts
support the growing demand?
We will see the number of starts continue to increase
over the next 18 months because the demand continues to exceed the supply on a national level. In 2010,
we had the lowest number of starts in the past 50 years
in the apartment industry. There is a substantial deficit
of new supply in most markets.
What is the availability of capital
for these starts?
For the most part, developers of substance — developers with experience in strong markets — should be
able to continue to get capital and equity participation.
There has been up until recently too much of a desire
by the banks and the equity [investors] to be concentrated in perhaps half a dozen cities. Now that those
cities are beginning to reach something that looks like
equilibrium, the capital shall begin to become available
for other, smaller markets in the country.
The big issue as it relates to capital is the future of the
government-sponsored enterprises (GSEs), Fannie Mae
and Freddie Mac. Ensuring their survival in some form,
or at least an orderly transition from government support to private market, is absolutely critical.
What are your priorities as NMHC chairman?
My number one priority is to focus as much as we can on
a continued supply of reasonable liquidity to the apartment market in light of the threats to the GSEs. Two, try
and use the lessons learned from the economic collapse
to reinforce the point we’ve long made that renting is a
viable housing alternative and not to be denigrated by
public policy. Third, continue to expand our voice on legislative and regulatory issues of concern to the industry.
Rania Oteify is an associate editor at Scotsman Guide. Reach
her at (800) 297-6061 or email@example.com.