Retail real estate has continued to deliver stable returns in the United States despite steady e-commerce gains. Recent analysis from MSCI finds that retail asset performance actually edged slightly ahead of non-retail assets in the 2012-2017 period, delivering an annualized total return of 10.4 per cent versus 10 per cent for non-retail properties.
In part, this reflect the culling of weaker properties in what is characterized as the “over-retailed U.S. landscape”. Whole categories of merchandizing, such as video rentals, have disappeared, while services such as banks and pharmacies are slashing their real estate holdings. On the flipside, however, investors and asset managers have been pouring capital into flagship properties and are finding new types of tenants.
“Recent doom-and-gloom predictions may have overstated the current stresses facing retail asset investors,” surmises Will Robson, executive director and head of real estate applied research with MSCI.
He outlines some key contributing factors to retail real estate resilience, noting that expansion in the thriving market segments is counterbalancing closures in others. Accordingly, many savvy retailers are using their physical space in new ways to complement and brand their online business.
Big data is another burgeoning factor, as Wi-Fi and associated tracking systems give mall managers more information about shoppers’ preferences and points the way to new potential service offerings. For now, U.S. census data shows that 9 per cent of sales are occurring online, meaning that there is still plenty of market share to be divvied up in bricks and mortar.
High-quality retailers and a healthy consumer base are almost inextricably linked. “Tenants may continue to be drawn toward those malls that generate the highest traffic as new concepts are introduced,” Robson reasons.