ICSC 2013 – The Tipping Point

May 2013

After ICSC 2012, Ravid Law Group published the “Return of Retail” as some of the country’s top brokers expressed their optimism that retail, after years of struggling, was making a come-back.  Judging by the excitement at this year’s ICSC, they were right.  According to our survey of experts, retail is not only back, but is reaching new heights with increased activity and interest unparalleled since before the Great Recession, and with predictions of even more growth to come.  Not only is leasing activity on the rise, but our insiders are seeing renewed interest in major renovations of existing centers and even new developments—something we haven’t heard much about in recent years.  We asked several prominent brokers and consultants to compare this year’s ICSC and the overall market to recent years and here’s what they had to say:

“This year’s ICSC had more tenants doing multiple deals nationwide.  Many tenants came into ICSC with a plan to open up five or more stores in the next year. We haven’t seen that kind of interest by that many tenants in at least five years.  The market is getting stronger and stronger,” said Jay Luchs, who is Executive Vice President at Newmark Grubb Knight Frank, and is widely recognized as one of the country’s leading national retail experts serving both high-end fashion and luxury brands and the entertainment industry.

Houman Mahboubi, Managing Partner of BRC Advisors, and a leading expert in the city of Beverly Hills and other premium markets, with a focus on both sales and leasing concurred, “This year was the busiest and most active ICSC in the past five or six years.  We’ve never seen so much money on the sidelines wanting to jump in, both for retail investments and development.  The amazing thing about the retail investment is that people are willing to buy at a four cap rate, and even in some cases as low as a three and a half cap rate in the great high-end retail areas.  Leasing is going off the charts in each of the ‘Beverly Hills areas’ throughout the country where the vacancy is less than 3–4%.”

John Auber, President of the Auber Group, and a leading national tenant representative for over twenty years added, “2013 and 2014 will certainly be characterized as the period of renovations.  Developers are investing in their existing assets to ensure their properties are positioned for the future.  Since new development projects are still few and far between, existing assets are getting much needed capital improvements.  In addition to these remodels, landlords are working aggressively to remerchandise their centers in an effort to shore up market share.  With the lack of new developments, the pressure to grow within the existing base of retail offerings puts some competitive economic pressures on tenants as space is certainly limited in the top tier centers.  The upgrading of centers and merchandising in the middle tier properties will hopefully elevate them to better performers and further attract the desired tenancy.  Markets should continue to consolidate and the better properties will benefit.  With supply not growing, the demand for space to satisfy growing tenant expansion should further help stabilize the shopping center base.”

One of the industry leaders in the Downtown Los Angeles market, Derrick Moore, Principal – Urban Retail Properties at Avison Young, added, “Our Downtown retail market is continuing to show signs of a strengthening economy, driven in part by an increase in new development—residential and hospitality. Downtown Los Angeles currently has over 5,000 residential units in planning or under construction and a number of hotel projects, most notably the Wilshire Grand/Korean Air project at Wilshire and Figueroa.  Retailers have taken note of our growing residential population (over 50,000 residents) and of the many successes on the restaurant front, and have determined that Downtown Los Angeles is ‘the place to be.’  Additional grocery retailers and clothing retailers are entering the market, so 2013 is poised to be a great year for retail growth.”

But not everyone sees a bright future ahead.  Michael Townsend, President of Townsend & Associates and a national advisor for leading retail merchants throughout the country echoed his concerns from last year over a seemingly too-fast rising market saying, “Landlords and investors are feeling a bit invincible right now and acting once again as if the market will always go up.  We call economic markets ‘cycles’ for a reason.  The problem will come when merchants’ sales fail to escalate at the same pace as landlords’ expectations.”

Our experts proved to be prescient in 2012.  And if last year marked the return of retail, this year may be looked back on as the tipping point for the boom in real estate. The market is hot, and owners, developers, and retailers throughout the country are going full speed ahead.  It is as good a time as ever to be in real estate.