Tough Times In Sight

Retail real estate is in for a rough ride, according to the latest “Emerging Trends in Real Estate” report by the Urban Land Institute and PricewaterhouseCoopers L.L.C. “Retail stays down for a while,” the report stated.According to the report’s assessment of the prospects for 11 subsectors–three of which are retail–neighborhood/community centers have the best outlook among the retail subsegments. On a scale of 1 to 9, with 1 meaning “abysmal,” 5 representing “fair” and 9 signifying “excellent,” that subsegment earned a mark of 4.67 for investment projects and a tally of 4.08 for development prospects. Power centers pulled in a score of 4.06 for investment prospects and 3.5 for development prospects. Regional malls are forecast to have a more challenging time. That subsector’s score for investment prospects came in at 3.89, while its score for development projects was 3.11. By December 2009, the expected cap rate for neighborhood/community centers is forecast to be 7.54 percent, a 73-basis-point uptake from July 2008’s 7.01 percent. The cap rate for power centers is expected to hit 7.57 percent, up 66 basis points from 6.91 percent in July 2008, while regional malls are projected to achieve a cap rate of 7.83 percent, up 52 basis points from 6.19 percent in July of this year.“Shopping center owners brace for value losses and declining operating incomes,” the report predicted. “Replacing lost tenants will prove difficult as retailers retrench. Until job growth resumes and gasoline costs moderate, consumers’ enthusiasm lags.” Higher interest rates coupled with decreased housing values won’t make matters any easier.