New Signs of Life on Retail Horizon, Says JLL Report
The good news from Jones Lang LaSalle (JLL) on the retail real estate market is that for some markets, there is rental growth, even at a time when the overall picture for retail real estate is not promising.
The "Mid-Year Outlook" report recently released by Jones Lang LaSalle notes: "The modestly positive outlook was led by major markets with strong demographic and population growth, a lack of new, high-quality supply and improving leasing velocity."
While the average national retail rent fell 1.7% year-over-year and fell .05 in the second quarter, according to Jones Lang LaSalle, several markets--Miami, Washington D.C. and Tampa - experienced the opposite trend. Of the three, however, Miami is the clear winner, registering a 13.2% growth in rental rates in second quarter 2012 compared to second quarter 2011. "This is an average for all retail in the area," says Greg Maloney, president and CEO of Jones Lang LaSalle Retail, who is based in Atlanta.
"Generally speaking, South Florida is recovering extremely well," although there are a lot of variables, says Maloney. "However, it fell harder than in many other places, so it has a longer way to come back to where it was," before the recession, he says.
"The retail (real estate markets that experienced) the biggest falls were Florida, Las Vegas and Phoenix," among others, says Maloney. These are places where there was over-building. "Now, as we see a recovery, they are outpacing places like (cities in the) Midwest."
Miami and South Florida's retail real estate is also affected by the number of foreign visitors, which are probably at an all-time high; because prices for goods and services in the US are much lower than in the places they have come from, says Maloney.
"Tampa (where the retail rental increase was 1.9% in the second quarter year-over-year) is becoming a favorite for tourists," says Maloney. "There isn't much space (on the East Coast of Florida anymore), but on the West coast," there is still room for more people and development, he says.
In Washington D.C., where the rental rate growth was 2.6% in the second quarter, year-over-year, there is a rebound in the economy, because of the government, says Maloney. "As it continues to expand, so will Washington, D.C.'s" retail real estate market.
Then there are a number of markets where rents are projected to rise over the next few years. Markets with the highest projected rent growth (by percentage) include Raleigh (averaging 4% annually through 2016), Phoenix (averaging 4.2% annually through 2016) and Las Vegas (projected to be as high as 8.5% in 2015).
Still, says Maloney, the retail real estate market, as a whole, has not recovered from the downturn. "When retailers start to tell developers that they need to be in a particular market," that will be a sign that the recovery is solidly underway, he says. "But that is still not happening," says Maloney. "In 2010, I thought there'd be a lot of new development, but I was wrong." Plus, he says, "There are not a lot of new retail concepts and that has slowed down growth. What we really need is to get all the bad product, those (retail outlets) that are closed or that have high vacancies," redeveloped. "It will still be another 18 to 24 months before new development is started," says Maloney.