Retail Executives at Most Upbeat Since 2007: ICSC

Something that has been missing from retail real estate for almost three years is starting to make a comeback: optimism.

Courtesy Flickr Creative Commons User Matti Mattila

Retail Executives Most Upbeat Since 2007: ICSC

By Paul Rosta, Senior Editor

Something that has been missing from retail real estate for almost three years is starting to make a comeback: optimism.

The International Council of Shopping Center’s monthly index of retail real estate executive views, released April 1, edged above the 50 percent mark in March for the first time since July 2007. The March score of 52.6 percent, which incorporates impressions of both present and future conditions, represented a 4.5 uptick compared to February.  Lest the improvements be viewed as a flash in the pan, the year-over-year gains in executive confidence are even more striking. Since March 2009, the index has gained 15.3 percent.

 ICSC’s monthly Shopping Center Executive Business Barometer surveys retail real estate executives nationwide on both present conditions and on their expectations for the next six months.  The 50 percent threshold indicates business conditions that are unchanged from the previous month; scores of more than 50 percent indicate market growth, and a score of less than 50 suggests market contraction.

The most recent gains are anchored by executives’ increasingly upbeat take on present market conditions. Respondents scored the climate for March 6.3 percent higher than they did in February. Of the five categories describing current conditions, three enjoyed a major boost. Cap rates leapt by 14.4 percent. Sales improved 9.3 percent, and customer traffic rose 6.5 percent.

Encouraging as they are, the most recent indicators also leave room for improvement in several categories. Executives’ outlook on occupancy rates ticked up just 2.8 percent. Rent spreads—the only category of current conditions to decline—slipped 1.6 percent from February to March.

 Expectations for the next six months showed more modest gains, indicating that executives are taking their optimism with a pinch of caution. All told, ICSC’s expectations index improved 2.6 percent to 54 percent. Cap rates improved by 10.1 percent and sales improved 8.2 percent, but rent spreads and occupancy rates both retreated several percentage points in the view of those executives surveyed.  As with current conditions, however, confidence in future conditions has made a remarkable climb in only a year.  Since March 2009, the future conditions portion of the index has risen 14.9 percent, led by increasing optimism about occupancy, sales and rents.  

Responses to a series of special questions about local market conditions suggested that stability is beginning to replace decline. For the first time since June 2008, a majority of those surveyed—51.4 percent—described local market conditions during the previous three months as “largely unchanged.” That is a marked improvement over perceptions that high vacancy and low rent increases have been steadily weakening markets. An identical 51.4 percent told ICSC that sales of retail properties remained unchanged during the previous three months.  On the financing front, 51.4 percent of executives surveyed agreed that equity financing conditions in March remained basically unchanged from three months earlier—the highest percentage to say so since March 2007. And 21.6 percent believe that equity financing was more available than it was three months ago. That represents a 6.8 percent increase in the past three months.