Top Executives Offer Retail Insights at Annual Marcus & Millichap Event
- May 21, 2014
A diverse lineup of executives created a snapshot of a resurgent, fast-changing retail real estate sector at the annual panel discussion hosted in Las Vegas on Monday by Marcus & Millichap Real Estate Investment Services Inc.
As always, the session coincided with RECon, the International Council of Shopping Centers’ annual spring dealmaking and educational event, which concluded on Tuesday.
“The consumer that was supposed to shut his wallet and hide in the caves is back,” asserted Hessam Nadji, Marcus & Millichap’s executive vice president & chief strategy officer, told an audience of several hundred at the Renaissance Hotel. Nadji pointed to retail sales volume, which is 14 percent greater than it was at its pre-recession peak. Vacancy levels vary widely around the country, but those figures can be misleading, he explained. Even in the nation’s three highest-vacancy markets—Atlanta, Las Vegas and Detroit—vacancy is on track to decline significantly this year, Marcus & Millichap projects.
Nadji marshaled further evidence that the economy is performing far better than is usually perceived. Private-sector jobs now surpass pre-recession totals, and 2.4 million new jobs have been added in the past 12 months alone. Over the next 12 to 24 months, unemployment should decline to between 5 percent and 5.5 percent. Other positives include pent-up demand for 3 million-plus housing units and household wealth that exceeds 2007 levels. ”There is always uncertainty, but based on the numbers, I think this recovery is sustainable,” Nadji said.
Moreover, markets beyond the largest metropolitan areas provide ample opportunity to retailers willing to try new locations and formats. Knocking preconceptions into a cocked hat, grocery stores featuring healthy and organic products are proving to be a hit in the heartland. “We do very well in Oklahoma,” reported Ted Frumkin, senior vice president of business development for Sprouts Farmers Market. The chain’s current goal is to expand from its current roster of about 170 stores to 1,200 stores, but Frumkin added that identifying suitable locations for new stores remains a significant challenge.
Panelists also shed light on the main challenges and opportunities facing retail real estate. One common theme was online retail. As Nadji related, Internet sales increased 58 percent between December 2008 and March 2014, far outpacing the growth rate of conventional retail sales. But while online and traditional retail compete for customers to some extent, executives insist that online retail is supplementing, not supplanting, traditional store formats.
“Yes, we have growth in the non-brick-and-mortar sector,” Phillips observed, “but you’re seeing (leading online retailers) go brick and mortar.” Frumkin added, “What we as retailers have to figure out is how to integrate that component of the shopping experience in the store:” Example: the expanding use of smartphone apps in traditional shopping.
To round out the discussion, moderator Bill Rose, vice president & director of Marcus & Millichap’s national retail group, asked the panel to offer the audience one piece of advice. The deceptively simple question yielded revealing responses.
- “Be that much more location-focused,” urged Rahul Seghal, chief investment officer of Inland Private Capital Corp. “We are focusing much more on location even more than 10 years ago.”
- Michael Phillips: “It’s best to treat the retailers as your customers.”
- Trust your instincts, suggested Nadji. Marcus & Millichap’s most recent retail sentiment survey suggests rising confidence among investors—almost always a reliable indicator of the market’s direction: “If you’re looking at an investment that makes sense, and you can lock in the interest rate . . . don’t overthink it.”