Retail Market Outlook Shows Positive Results Looking Ahead

Auction.com, LLC, recently released its Retail Market Outlook, which offers analysis on market metrics, provided vacancy and rent projections, and reveals the top markets in which to buy and sell retail assets in 2015.

The analysis found that U.S. retail transaction volume is highly liquid, coming in at $24 billion in the first quarter of 2015, slightly down from the previous quarter. This was an increase of 4.8 percent from a year ago.  This is retail’s largest 12-month rolling total since the third quarter of 2007 where the market peaked at $89.7 billion.

“While the retail sector’s recovery varies by region, and is challenged by the growing percentage of online sales, we believe that the sector's performance will accelerate over the next few years as the economy improves and wages increase," said Rick Sharga EVP of Auction.com.

The West Coast leads the performance side of the retail capital market with transaction volume at $7.2 billion in the first quarter, a 138 percent increase from last year, the outlook says. Meanwhile, the Northeast had $4.2 billion in first-quarter transactions.

The Southeast and West are currently projected to be the most promising retail markets, Auction.com found. Investors are moving away from oil producing metros and going toward coastal zones. On the other hand, the Midwest and Northeast are experiencing slow population growth in these regions’ markets which brings down their retail market.

The online real estate marketplace expects a 2 percent rent increase and a 9.8 percent vacancy rate for the U.S. retail sector in 2015.

“An improving job market, rising home prices, increasing consumer confidence, and lower energy prices all point toward stronger consumer spending, which is massively important for the retail sector,” Sharga said.

Auction.com chief economist, Peter Muoio believes that although the retail market has endured the slowest recovery in fundamentals of all the major U.S. commercial real estate sectors since the Great Recession, the improvements in the economy will set the stage for future retail market spending. This, along with the limited pipeline of new supply, will speed retail recovery.

“Auction.com anticipates a drop in retail vacancies to the mid 8 percent range by the end of 2018, as the sector’s struggles inhibit new development and allow gradual improvement in absorption to chip away at availability,” said Muoio. “This will yield an acceleration to 2.7 percent average annual effective rent gains in that four-year span.