Retail Outlook. United States Q4 2014

Transcription

1 Retail Outlook United States Q4 2014

2 In this report This report provides an overview of supply and demand conditions as well as brief analyses of retail property subtypes and select retail markets in the United States. Our professional research department is dedicated to producing information and insights that help our clients understand dynamic real estate market trends and guide critical decision making for investors and occupiers. About JLL Retail 2 Economy 3 National retail market 4 Retail subtype performance 6 Retail property clock 7 Local market trends 8 JLL s Retail Group serves as the industry s leader in retail real estate services. The firm s more than 800 dedicated retail experts in the Americas partner with investors and occupiers around the globe to support and shape investment and site selection strategies. Its retail specialists provide independent and expert advice to clients, backed by industry-leading research that delivers maximum value throughout the entire lifecycle of an asset or lease. The firm has more than 90 retail brokerage experts spanning more than 25 major markets, representing more than 500 retail clients. As the largest third party retail property manager in the United States, JLL s retail portfolio has 430 centers, totaling 68 million square feet under management in regional malls, lifestyle centers, grocery-anchored centers, power centers, central business districts, transportation facilities and mixed-use projects. For further information, visit For more news, videos and research from JLL s Retail Group, please visit: JLL United States Retail Outlook Q

3 Economic performance GDP 2.6% GDP pulls back in the fourth quarter After a strong showing in the third quarter, real GDP rose a modest 2.6 percent in Q Notwithstanding, the economy seems set to continue strong growth in Household spending is leading growth, supported by more and better-quality jobs, low debt service burdens, high stock prices and rising housing values, as well as plummeting fuel prices. Housing stalls yet again New home sales decreased 1.6 percent to a total of 438,000 homes in November. Despite the unsteady performance of home sales, the outlook is positive. There are several factors working in housing s favor: consumer confidence is lifting, house prices are still affordable and employment is steadily strengthening. Furthermore, the mortgage credit spigot is finally starting to open and down payment requirements are loosening, all of which should make home-buying more attractive. Employment growth advances further in the fourth quarter The labor market is steadily making progress. The monthly average for the fourth quarter was 289,000 and the unemployment rate has fallen to 5.6 percent. The year ended on a strong note for employment, although November s outsized gains (of 353,000) were not repeated in December. The breadth of job gains also indicates the economy is strengthening. Total new hires of 2.9 million in 2014 are at the highest level since As a result of increased business confidence, hiring has stepped up to meet increasing demand. Consumer confidence continues to climb The Conference Board s Consumer Confidence index inched up 1.6 points to 92.6 points in December. The increase was a result of improvement in the present conditions component, although expectations for conditions in six months were somewhat less optimistic. Assuming that wage growth persists, we should expect to see an uptick in consumers outlook for future prospects. JLL United States Retail Outlook Q

4 National retail market Total United States Type Total s.f. Total vacancy YTD net absorption Q Avg rent Q-Q % Chg Y-Y % Chg* Malls* 877,888, % 5,859,805 $ % -8.5% Power centers* 747,124, % 6,826,292 $ % -2.6% Shopping center* 3,485,520, % 37,608,314 $ % 0.9% General retail* 4,928,381, % 39,423,844 $ % 5.5% Total retail* 10,117,449, % 91,581,499 $ % 2.1% * Major markets only Retail net absorption for all of the United States totaled million square feet in Deliveries for the year continue to track comfortably below absorption at 60.6 million, helping to push down vacancy 60 basis points since the end of Average national rents rose 2.1 percent over the last year and 0.4 percent in the last quarter. Rents will definitely continue to rise as long as new supply remains somewhat constrained. However, rents will likely not reach their previous peak until Store closing announcements for 2015 have already made headlines. Sears is planning to close between 130 and 235 Sears and Kmart stores this year, JC Penney is trimming approximately 39 stores and Macy s is closing 14 stores. Furthermore, both RadioShack and Wet Seal have announced bankruptcies and are shutting down hundreds of stores in the process. Are we approaching an era of unanchored centers? As anchor closing announcements escalate, it is clear that we are heading for a de-emphasis of the anchor store as the main draw to a center. Centers will increasingly position themselves as the destination and will focus on offering a total lifestyle experience, where consumers can shop, work, socialize, eat, be entertained and live. So, what can centers do to more effectively act as a destination to consumers? 1. New tenant mixes and anchors will focus on customer lifestyles not just customer shopping styles like fitness, healthy living, gourmet cooking or green living and sustainability. 2. A fresh tenant mix is often crucial to a successful redevelopment. Anchors like Neiman Marcus and Nordstrom are a huge draw. So are fast fashion retailers H&M and Forever Entertainment is equally essential. Adding new restaurants and theatres injects new vitality into a center. Fast casual restaurants such as Chipotle, Smashburger and Five Guys Burgers and Fries are very effective in drawing consumers, as are luxury theatres like ipic that offer high-end cuisine and reclining leather chairs. New big box spaces, such as Dick s Field & Stream store, can also add new life to a center. 4. Keeping retailers, food offerings and décor fresh, while providing ample green space, lounging areas and free Wi-Fi, will be key to making consumers happy. 5. Technological tools like Beacons can also play an important role in making the center, and the stores within it, interactive while gaining valuable data on how consumers move around a center. Beacon technology involves the proximity of the consumer (or products) to individual receivers in key locations around the center or store. By tracking the location of shoppers and interacting with them through their mobile devices, landlords and retailers gain greater control over the timing and customization of their marketing messages. JLL United States Retail Outlook Q

5 Absorption has been strengthening since 2010 Net absorption has been steadily gaining traction since 2010, with 2014 showing the strongest growth since However, it is still low compared to RBC estimates that, over the next two years, the retailers in its database plan to open a total of 77,547 stores. Dollar stores, including Dollar General and Family Dollar, have some of the most ambitious expansion plans in the retail universe right now, as do restaurant chains such as Subway, Quiznos and Five Guys Burgers and Fries. New tenants also continue to fill in vacancies left by closing stores. Examples of these are fitness centers (e.g., OrangeTheory Fitness), minute clinics and international retailers such as Primark, which is taking over part of at least seven Sears spaces. Clicks-to-bricks are also pressing the accelerator pedal, including Rent the Runway, Bonobos, Zappos and Nasty Gal. After plunging in 2009, net absorption is seeing steady growth Millions Net absorption s.f Source: CoStar Several major leases that took place in 2014 include: Neiman Marcus New York, NY Costco Seattle, WA 250,000 s.f. The Shops & Restaurants at Hudson Yards 185,000 s.f. Lynwood Place Walmart Northern New Jersey 156,000 s.f. The Court of Hamilton Source: CoStar Saks Fifth Avenue Miami, FL 107,000 s.f 700 S Miami Avenue JLL United States Retail Outlook Q

6 Retail subtype performance Total Retail Malls Power Centers Shopping Centers General Retail All retail building types in both single-tenant and multitenant buildings, including owner-occupied buildings Includes Lifestyle Centers, Regional Malls and Super Regional Malls Consists of several freestanding anchors with minimal small tenants (250, ,000 s.f.) Includes Community Centers, Neighborhood Centers and Strip Centers Consists single-tenant freestanding general purpose commercial buildings with parking The share of construction by retail property subtypes has shifted since In 2007, before the recession began, a significant portion of construction 32.8 percent consisted of shopping centers. Power centers also constituted a much higher percentage of overall construction, at 18.4 percent. In 2014, much of the construction activity recorded has been for general retail (including storefront/urban retail) where the percentage of square feet under construction has risen 12.9 percentage points from The rise in outlet activity has also resulted in a larger share of construction for specialty centers, although the number is still low at 3.3 percent. There has been an uptick in construction activity for malls, largely because many malls are under renovation or expansion, or new malls are being built where demand is white-hot. While some malls have become defunct, because of their location and current demand in the surrounding area, other malls in B (or even A) markets have the opportunity for even greater returns through savvy redevelopment, greater investment in technological infrastructure and refreshing the tenant mix. Malls and specialty retail constitute a greater share of construction in 2014: Share of square feet under construction 100% 80% 60% 40% 20% 0.4% 4.4% 3.3% 18.4% 18.1% 16.4% 19.2% 32.8% 32.1% 55.0% 0% Source: CoStar Specialty Retail Power centers Malls Shopping centers General retail JLL United States Retail Outlook Q

7 Retail property clock Peaking market Falling market Miami,, Houston, Fort Lauderdale,, Washington, DC, San Diego, Los Angeles, United States Palm Beach,, Orange County Seattle, Philadelphia,, Tampa,, Rising market Bottoming market Reading the clock The Jones Lang LaSalle retail property clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock, with markets on the left side of the clock generally landlord-favorable and markets on the right side generally tenant-favorable. Almost all of the markets have moved to landlord-favorable (with the exception of ) as rents gradually head upward and vacancy continues to contract. is in a bottoming market, evidenced by slowing rent declines and very little new construction., Tampa, Philadelphia,,,, Washington, DC, Fort Lauderdale,, Palm Beach, Seattle, San Diego, Los Angeles, Orange County, Houston, Miami, and are in a rising market. JLL United States Retail Outlook Q

8 Local market trends Almost all the markets we track saw some vacancy compression during 2014, with being the exception. Seattle and, in particular, saw very healthy 100-basis-point declines in vacancies from Q to Q Understandably, the markets with the tightest vacancies (, and Miami) for the most part saw a smaller compression or none at all; vacancy remained flat, year-over-year. Markets with the lowest vacancy rate 2.1% 2.8% 3.5% Miami 3.5% 3.9% Markets with the highest vacancy rate Fort Lauderdale 6.3% 6.7% 7.1% 8.3% 8.4% Year-over-year change in vacancy (bps) Miami, DC and NYC storefront retail construction red hot In last quarter s report, we looked at how urbanization is picking up steam and how urban retail is seeing strong absorption and rent growth. In the chart seen here, the most active markets where storefront retail is currently being built (among the markets we track) are Miami, Washington, DC and New York City. Miami, in particular, is showing very aggressive activity in storefront construction at a total of just under 900,000 square feet almost 4.0 percent of its total storefront stock. Washington, DC has just over 650,000 square feet of storefront retail under construction, while New York City has more than 486,000 square feet. Broward County/Fort Lauderdale, and Palm Beach have negligible construction of storefront retail currently, which is not surprising, given that they have relatively lower stock of storefront retail overall U.S. y/y vacancy chg: -60 bps Seattle Tampa San Diego Houston Los Angeles Broward County Miami-Dade County Washington, DC Orange County Philadelphia Palm Beach County Source: CoStar Miami 3.8% Washington, DC 1.7% 1.5% Tampa 0.8% 0.5% Los Angeles 0.4% Houston 0.4% Philadelphia 0.3% 0.3% 0.2% 0.2% Seattle 0.1% 0.1% San Diego 0.1% Orange County 0.0% 0.0% Broward County 0.0% 0.0% *Chart shows construction of storefront retail as a % of total s.f. by market Source: CoStar Source: CoStar, JLL. As of Q JLL United States Retail Outlook Q

9 What is being built where? While construction is ramping up, as a whole across the nation, attributed to urban/storefront retail. Broward County/Fort construction of certain retail property types varies among different Lauderdale and Orange County (CA) have mostly mall-focused markets. Miami, Washington DC and NYC, for example, all had a construction. Interestingly, all of Palm Beach s construction at the end of predominance of urban/storefront construction activity at the end of 2014 was for shopping centers, while nearly all of s construction and are also seeing a good portion of was for power centers. storefront construction, with 80.0 percent of all retail construction in Shopping center 100.0% 92.0% 88.0% 86.0% 85.0% 73.0% 54.0% Palm Beach Houston San Diego Seattle Tampa Mall 97.0% 86.0% 57.0% 50.0% Orange County Fort Lauderdale Los Angeles Urban/storefront 80.0% 60.0% 58.0% 55.0% 53.0% 48.0% 38.0% Philadelphia Miami Washington, DC Power center 99.0% Source: CoStar * Percentages represent the proportion of that property type (of the four types shown) being built in a particular market. JLL United States Retail Outlook Q

10 U.S. retail weather map Seattle 0.3% 1.2% 2.7% 7.4% Orange County 1.0% 0.0% Philadelphia Washington, DC -0.5% 1.6% 1.3% 8.0% 0.4% 1.3% -1.6% 0.5% 0.8% 3.3% Los Angeles San Diego 2.4% 3.7% -0.1% 4.9% 0.8% -0.9% -0.8% 9.4% 0.1% 4.2% -0.9% 4.7% Houston Tampa 0.2% 0.5% -0.3% -0.5% 0.3% 5.2% 1.2% 4.0% 4.1% 10.6% Miami Palm Beach Broward Rental conditions Rents growing (greater than 1.5% q/q) Rents flat (between -0.5% and 1.5% q/q) Rents falling (greater than -0.5% q/q) 0 0 Q/Q change in rent Y/Y change in rent Source: CoStar, JLL Research JLL United States Retail Outlook Q

11 United States retail rankings Total inventory (millions of s.f.) Philadelphia Los Angeles Houston Washington, DC Tampa Seattle Orange County San Diego Miami-Dade County Broward County Palm Beach County Millions Total rent change (year-over-year) Miami-Dade County Washington, DC Palm Beach County San Diego Houston Broward County Los Angeles Orange County Philadelphia Seattle Tampa -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%12.0% Total vacancy change (year-over-year, bps) Seattle Tampa Houston San Diego Los Angeles Broward County Orange County Washington, DC Miami-Dade County Palm Beach County Philadelphia Total YTD net absorption (millions of s.f.) Broward County Palm Beach County Miami-Dade County San Diego Washington, DC Orange County Seattle Philadelphia Tampa Los Angeles Houston Millions JLL United States Retail Outlook Q

12 For more information, please contact: Greg Maloney President & CEO Retail Americas Greg.Maloney@am.jll.com Aaron Ahlburn Industrial & Retail Research Director, Americas Aaron.Ahlburn@am.jll.com Naveen Jaggi President Retail Brokerage JLL Americas Naveen.Jaggi@am.jll.com Keisha McDonnough Senior Research Analyst Retail Americas Keisha.Mcdonnough@am.jll.com About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit About JLL Research JLL s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc. COPYRIGHT JONES LANG LASALLE IP, INC. 2015