March 7, 2017
By Dennis Kaiser
Connect Media will sit down with the industry leaders on March 16 at Connect Retail West for a panel entitled: Investing in Retail: Strategies in 2017. Retail experts will examine what primary, secondary, and tertiary markets are piquing the interest of investors for new opportunities and portfolio growth. Scott Trafford of TH Real Estate, an affiliate of Nuveen – the investment management business of TIAA – shares with Connect Media what factors are driving decisions and where investors are looking next, as this sector continues to evolve in our latest 3 CRE Q&A.
Q: What trends do you see driving or impacting the retail investment market in the year ahead?
A: Everyone is looking for yield. The scarcity of high quality product, coupled with high demand to place capital from institutions and private equity is keeping cap rates low for the best product. I expect more of the same in 2017: to see the spread between highly desirable core/urban assets increase over secondary/tertiary markets. The general consensus from the market is interest rates will rise in 2017, but the range is up for debate between 50-100 bps by year end. Short term holders will look to sell at favorable cap rates, but struggle to redeploy that capital.
Q: How can/should companies adjust to meet the challenges?
A: Landlords should be mindful of short term leasing risk; on existing assets or an acquisition. Retailers are increasingly selective when evaluating new store openings. Leasing velocity continues to drag. If current market rents are below expectations, consider short term one to three-year deals or pop-up stores to keep occupancy up without locking in a long term lease at below market rents.
Q: What are the hottest investment markets or product types you see ahead?
A: TH Real Estate does not necessarily restrict retail to any particular region/submarket, but typically the company buys in gateway markets that demonstrate a few key factors, among others; highly liquid RE markets, strong demographics, and promising job growth. A careful eye on the strongest secondary markets could see opportunities to buy historically durable assets at favorable pricing.
For comments, questions or concerns, please contact Dennis Kaiser