Shopping Center Business

MAY 2016

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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JAZ DEVELOPMENT 328 • SHOPPING CENTER BUSINESS • May 2016 Oliver believes the Hilton Head Island area — particularly Bluffton — continues to offer a great deal of retail opportunity for developers and tenants alike. "All of the big box retailers have made Bluffton their home, and there's been a lot of action in the specialty grocer space," says Oliver. "This is a great, very dynamic market for that kind of grocer. We really like to use a mix of big box and grocery in our centers, and I think that provides a nice mix for investors and lenders." Oliver has also noticed a difference in recovery time between the urban core and coastal regions, like Bluffton. "The difference in South Carolina is that we never had the velocity down there, espe- cially in the coastal areas," says Oliver. "Coastal Carolina never had the pace of development that urban centers had, so you didn't have the overbuilding. While commercial development got hurt during the recession, it wasn't like there was a vacant strip center on every corner like some parts of Atlanta. Development in the coastal regions has picked up, but it's at a slower pace and it's a little bit more measured development than what we saw pre-recession in Atlanta." While Jaz is seeing a boom of activity in South Carolina, it's also seeing success in Atlanta with several projects under devel- opment and under management through- out the city. The company intends to keep busy in the coming years with more develop- ment. "I think that we are going to ride this development wave cautiously for the next couple of years," says Oliver. "We've got to finish what we've got started but I think we are going to continue to look for a mix of opportunities. I've done urban, restaurant, hotel and retail. I kind of feel like whatever direction that takes us, we'll try to be cautiously optimistic." SCB T here has been more than enough volatility in financial, materials, and energy sectors thus far in 2016. Whether it is the daily 200-plus point swings of the Dow Jones Industrial Average; the drop in the price of oil by nearly 70 percent in less than two years; or the meager economic growth abroad leading to negative interest rates, in- vestors lack confidence in alternative investments outside retail property. In the past, such uncertainty may have had a negative effect on the retail prop- erty sector, but the investment market for retail properties is continuing to be a preferred target for both institutional and private investors. The factors giving investors confidence in this market in- clude some of the following: Stable Consumer Confidence — According to the Bureau of Labor Sta- tistics, the national unemployment rate has recently declined to 4.9 percent and the private sector has had 72 months of uninterrupted job gains – the longest streak on record. Additionally, the drop in oil prices is enabling the consumer to spend less at the pump than in past years, thus putting more discretion- ary dollars in people's pockets, which should translate into improving retail sales. Strong Real Estate Fundamentals — Lack of new retail development and stronger consumer spending which leads to tenant expansion, has im- proved occupancy rates in nearly every market across the country. Investors are attracted to the hard asset of real estate where they can benefit from apprecia- tion, favorable debt leverage, and tax advantages that come with depreciating the building improvements. Favorable Yield and Attractive Fi- nancing — Historically low yields with alternative investments has made the 5 percent to 7 percent return on invest- ment yield for retail assets very attrac- tive to investors. Additionally, despite the recent 25 basis point increase in the Federal Funds Rate, the majority of investors believe interest rates will not increase dramatically. This is due to the lack of growth in the economy and that availability to affordable capi- tal will be on the investor's side for the foreseeable future. Income Growth — Lack of income growth and depressed values in other asset classes bodes well for investment real estate. Investors place considerable value on increasing lease rates over the term of a lease. Not only do these in- creases provide a hedge against infla- tion, but more impor- tantly allow income growth and potential value appreciation in today's volatile environment. Though the driv- ers of the real estate market in each city and region are dif- ferent, investors are viewing ownership in retail real estate as not only a safe haven but as one of the only investment alternatives remain- ing that provides an attractive yield and potential for appreciation. While chal- lenges for the retail investment market always exist, the bottom line fundamen- tals and reasons for investing will con- tinue to provide the rationale investors require for further investments in the foreseeable future. Shaun Riley is senior managing director at Faris Lee Investments. Volatility Abroad Creates Hotter Market For U.S. Retail Property Investment Shaun Riley Riley

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