Shopping Center Business

MAY 2018

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

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RETAIL FORECAST 114 • SHOPPING CENTER BUSINESS • May 2018 These encouraging trends will continue this year as decreased construction activi- ty triggers increased demand. As a result, national vacancy is expected to fall 10 ba- sis points to 5 percent by year-end with San Francisco and Boston claiming the lowest vacancy out of major U.S. metros, both operating at sub-3 percent vacancy. As vacancy continues to fall, rents will act in accordance, increasing by 3.2 percent and pushing the measure to $19.97 per square foot. Another year of strong rent gains should support an active investment environment this year. RETAIL REAL ESTATE INVESTMENT: OPPORTUNITY AND UPSIDE The uncertainty over tax policy, which was a key factor that kept many investors on the sidelines for much of 2017, was remedied with the passage of the new tax law at year-end. Equipped with greater clarity, and in many cases benefitting from the new rules, investment activity should accelerate this year. Favorable treatment of pass-through entities may attract an influx of new capital while the preserva- tion of the 1031 exchange com- bined with low- er tax rates may also encourage retail real estate owners to list properties this year. As the e-com- merce sector continues to grow, investors are modifying their strategies and widening their search criteria for retail space with repurposing potential. Some investors are repositioning large spaces tradition- ally occupied by big-box retail anchors into spaces for smaller-format retailers and non-traditional users, such as service and entertainment oriented tenants. That said, investors are increasingly scrutiniz- ing leases, specifically those with a big-box retail brand, and assessing whether those retailers will reduce or shutter their spaces in the foreseeable future. In terms of specific markets, in- vestors should keep a close eye on Seattle-Tacoma, San Francisco and Bos- ton, sitting in the top three of Marcus & Millichap's National Retail Index. In these metros, high-wage job growth, driv- en by new technology, are inducing strong net migration, resulting in additional re- tail demand. Yield-driven investors may seek opportunities in Midwest cities, as cap rates in these metros are generally higher than those in coastal markets. Overall, a confluence of factors will pos- itively impact retail real estate throughout 2018. While challenges undoubtedly exist, this continuously evolving property type offers many opportunities for investors. SCB Scott Holmes is senior vice president and national director – retail, for Marcus & Millichap and IPA, a division of Marcus & Millichap. Scott Holmes Senior Vice President National Director – Retail Marcus & Millichap RIVER'S EDGE STEEL RIDGE I-80 & Hwy 370, Omaha CREATING LONG TERM VALUE THROUGH COMMUNITY DEVELOPMENT FANTASTIC SPACES INNER RAIL Aksarben Village, Omaha WEST FARM Boys Town, Omaha www.noddlecompanies.com | 402.496.1616 FOR LEASING INFORMATION CONTACT

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