Holiday Season’s Effects on Capital Markets

The holiday season is always an interesting time for institutional investors in retail, and after a year that’s started to see a slight increase in the market from a capital markets perspective, the most common theme appears to be, "Invest in the top 20 markets in the country to limit downside and to provide an exit strategy."
MASON

Gerry Mason, of Savills

The holiday season is always an interesting time for institutional investors in retail, and after a year that’s started to see a slight increase in the market from a capital markets perspective, the most common theme appears to be, “Invest in the top 20 markets in the country to limit downside and to provide an exit strategy.”

According to Gerry Mason, executive managing director of Savills, who advises institutional investors on REITs, pension funds and investment firms have closed more than $12 billion in real estate transactions.

“Investors are looking for income growth in the ‘core’ sector—at least two percent per year to justify the high prices in the market,” Mason told Commercial Property Executive. “My advice is to buy higher quality secure yield properties and do not overleverage. There is sure to be a market disruption during your holding period.”

Over Thanksgiving weekend, online sales were reportedly up 20 percent year to year, but since approximately 98 percent of all brick and mortar merchants now sell online, stores are realizing they don’t need to have the same space they once did, and are transitioning to smaller and smaller physical locations.

“This accounts for more efficiency with higher sales volume in less physical space,” Mason added. “This trend will continue. Our retail markets in the U.S. are approximately 20 percent overbuilt.”

Even with the hefty increase retailers saw last weekend, projections are that because of Thanksgiving being so late in the month this year, overall sales will probably be flat to slightly down once the final numbers of December arrive.

Looking ahead to 2014, Mason warns that investors should be cautious.

“The Federal government will curtail quantitative easing and long-term interest rates will rise—how far and how fast are the questions,” he cncluded. “Prices for retail investments should decrease as interest rates go up. We are currently in a pricing bubble for core properties at 4 percent and 5 percent cap rates.”