RCA Insights

US Retail Optimism May Be Regional

By on July 1st, 2019

Attendees at one of the largest U.S. retail property conferences earlier this year were hailed with the message that the future for retail is bright. Price trends suggest that the future may be brighter for some regions than others.

Speakers at the ICSC RECon conference in Las Vegas stressed that recent headlines surrounding department store closings and liquidations have made investors wary about the sector. But they pointed out that not all these closed department store boxes are sitting vacant.

New concepts and tenants are filling in many of these spaces, including coworking spaces, boutique fitness studios, and even food halls. Thanks to new technology like AI and mobile GPS tracking, as well as the evolution of e-commerce, investors continue to find creative ways to keep the sector alive, attendees were assured.

While there are trends to be excited about, there is still something to be said about location, location, location. The graph below charts the RCA CPPI retail trends across the six U.S. regions, showing that there are reasons to be optimistic in some parts of the country.

1907 Regional US CPPI retail MAIN-01-01

In the last cycle, retail property pricing tracked a similar path across all regions. It wasn’t until after the financial crisis that pricing diverged. It spiked in the Northeast and West, while the Midwest, Southeast and Southwest regions trailed behind and have not yet regained the levels seen before the recession.

Price trends in the Midwest are the weakest among the six regions. Investors are concerned about slow growth in jobs and personal income here, which has led to the hesitancy to push up prices in this cycle.

Industry players touched on the risks of oversupply and the importance of repositioning struggling retail assets throughout the ICSC conference. Consumers now look for experience, convenience, and a sense of community. Until there is a new source of job growth that can drive income growth, retail properties in the Midwest region will likely remain unattractive, with prices continuing to lag.

Retail may not be dead in the expensive and fast-growing areas of the U.S., but there may be more reason to worry in other regions.

To learn more about the RCA CPPI (Commercial Property Price Indices) and to sign up for reports visit rcanalytics.com.  If you are an RCA customer you can access RCA CPPI reports and run your own pricing analysis on the client-only RCA website.

Also on RCA Insights:

US Price Growth Speeds Up; Industrial Leads Again

US Loan Losses March to the Tune of Property Prices