Retail Woes Wobble Short-Term Investor Confidence

While the retail sector netted an annual price appreciation rate in June over the same period a year ago, the increase was modest at only 0.6 percent, according to the June results of the S&P/GRA Commercial Real Estate Indices. That return is markedly lower than retail’s peak of 15.1 percent in June 2007.To that end, amid the frosty economic climate, investors are wary about all types of retail properties, according to the third quarter 2008 Pricewaterhouse Coopers Korpacz Real Estate Investor Survey. Among assets that investors are eyeing cautiously are power centers—those that feature big-box and discount retailers—although the top coastal markets, along with areas undergoing considerable population magnification–such as Austin, Charlotte and Dallas–are the best locations for these centers, the report noted.Strip shopping centers are also struggling to cope with sluggish market conditions; sales have decelerated, plagued by a sizeable bid-ask pricing gap and soft retail fundamentals. Many investors, however, consider grocery-anchored shopping centers in infill markets with high barriers to entry or locations that are experiencing surging uptakes in population as preferred properties.Regional malls have also floundered, as curtailed consumer spending coupled with lofty fuel prices have weighed down performance. Not surprisingly, Class-A regional malls are generally forecast to fare better than their lower-grade counterparts and notch lower overcall cap rates in the coming months. The report noted, however, that investors are optimistic about overall commercial real estate in the long term.