Demand For Commercial Retail Space Remains Stagnant Amidst Slight Investor Activity

Salt Lake City, Indianapolis, Seattle, San Francisco and Austin Considered Top 'Buy' Markets, Despite E-Commerce Generating Widespread Retail Slump

IRVINE, Calif. and SILICON VALLEY, Calif., May 16, 2019 /PRNewswire/ -- Ten-X Commercial, the nation's leading transaction platform powering 90% of all online commercial real estate sales, today released its Spring 2019 U.S. Retail Market Outlook with a detailed analysis of current retail fundamentals, including the top five 'buy' and 'sell' markets for commercial retail assets. The report, which contains data and analysis derived from Ten-X research forecasts, Ten-X platform trends, Real Capital Analytics, Reis, RERC, U.S. Census Bureau and U.S. Bureau of Labor Statistics, shows that the U.S. retail market remains flat. Continued pressure from e-commerce and shifts in consumer spending have resulted in a high and stagnant retail vacancy rate.

Retail vacancy rates have remained stagnant at 10.2% since 2018 and are projected to remain around this elevated level through 2019 and well into 2022. High retail vacancy rates are a result of reduced demand for space owing to store closures in the face of e-retail competition, and the need for smaller store footprints. Effective rent growth has also stalled in the upper-1% range for the past two years, while the most recent quarterly effective rent growth remained at 0.4%, a slight 1.6% gain from a year ago.

An abundance of store closures and bankruptcies continue to dominate headlines. Classic anchor retailers such as Sears, JCPenney and Neiman Marcus have been negatively affected by the rise in e-commerce, as online sales continue to gain market share once owned by brick and mortar retailers.

Despite e-commerce activity and increased investment in the industrial sector leading to full warehouses and vacant storefronts, investors remain active in the retail sector. Many retail property buyers appear to be looking for redevelopment and repositioning investments. For example, Seritage Growth Properties purchased 235 Sears stores in 2015, converting the vacant spaces into offices, apartments and restaurants.

This investor sentiment is also apparent on Ten-X as retail properties listed on the transaction platform have had an influx of activity since the beginning of 2019. In March, average visits to Ten-X retail listings were up 24.4% from a year ago, even as sector fundamentals have been weak and stagnant. Furthermore, interested buyers viewing the secure document vaults hit a three-year high in the first quarter of 2019 – marking a 53% increase in the number of visitors compared to the same time last year.

"Despite continued weakness in the overall retail sector, investor sentiment is stronger than it was last year," said Ten-X Chief Economist Peter Muoio. "Given the trend toward retail repositioning and development, investor activity in the sector could remain strong even as fundamentals struggle."

The Retail Sector's Top Five 'Buy' & 'Sell' Markets:

Top 5 Buy Markets

4Q 2018
Rents ($ psf)

2022
Rents ($ psf)

Change in Rents
(%)

4Q 2018
Vacancies (%)

2022
Vacancies (%)

Change in
Vacancies (bps)

Austin, TX

22.10

24.06

+8.9%

6.6

5.8

-80 bps

San Francisco, CA

34.30

36.36

+6.0%

3.2

3.0

-20 bps

Dallas, TX

16.62

17.62

+6.0%

11.8

11.4

-40 bps

Salt Lake City, UT

14.88

15.56

+4.6%

12.0

11.9

-10 bps

San Antonio, TX

14.80

15.40

+4.1%

8.6

8.0

-60 bps

Top 5 Sell Markets

4Q 2018
Rents ($ psf)

2022
Rents ($ psf)

Change in Rents
(%)

4Q 2018
Vacancies (%)

2022
Vacancies (%)

Change in
Vacancies (bps)

Milwaukee, WI

14.32

14.03

-2.0%

13.0

14.0

+100 bps

Pittsburgh, PA

15.99

15.59

-2.5%

8.7

9.1

+40 bps

Northern NJ

26.49

25.93

-2.1%

8.4

9.0

+60 bps

Philadelphia, PA

19.04

18.69

-1.8%

10.8

11.4

+60 bps

Memphis, TN

12.46

12.25

-1.7%

12.7

12.9

+20 bps

Although retail deal volume in the northeast has historically been high, there has been a surge in the southern markets in recent quarters. Austin, TX; San Francisco, CA; Dallas, TX; Salt Lake City, UT; and San Antonio, TX have been identified as the top five 'buy' markets for spring 2019. These markets have all seen rent gains and lower vacancy rates. Overall, the Southwest region exhibits better buyer demographics and stronger economies, which provide a boost to traditional retail.

Meanwhile, Milwaukee, WI; Pittsburgh, PA; San Francisco, CA; Northern NJ; Philadelphia, PA; and Memphis, TN have been classified by Ten-X as the top five 'sell' markets. These cities have seen weak rents and higher vacancy rates, and will likely struggle through 2022.

"While the rise of e-commerce is hurting brick and mortar retailers everywhere, some areas of the retail market are holding up better, as retail deal volume has increased in the south and southwest metros," Muoio continued.

About Ten-X
Ten-X Commercial is the leading end-to-end transaction platform for commercial real estate that powers more than 90 percent of all online CRE sales. Our platform empowers brokers, sellers and buyers with data-driven technology and comprehensive marketing tools to expand market visibility and decrease time to close. Ten-X Commercial is headquartered in Irvine and Silicon Valley, Calif., with offices in key markets nationwide. Investors in the company include Thomas H. Lee Partners, L.P., CapitalG (formerly Google Capital) and Stone Point Capital.

(PRNewsfoto/Ten-X Commercial)

SOURCE Ten-X

For further information: Nicholas Koulermos, 646.843.1812, tenx@5wpr.com