The Great Recession left the retail real estate market ailing, but the sector exhibited some significant signs of health last year and should continue to recover in 2012.
Guests of the most recent episode of the "Commercial Real Estate Show" provided those observations and others in a detailed look at the market. Topics included retail spending, investment sales activity, landlord-tenant negotiations and the growth of Smashburger, an award-winning, fast-casual restaurant chain.
On a chain-store basis, retail spending grew by 4.7 percent in 2011 when compared to the year before, according to Michael Niemira, chief economist for the International Council of Shopping Centers. The growth was the largest since 1999, but Niemira qualified the rise by noting it was fueled to a large degree by price increases implemented by retailers grappling with inflation in their supply chains.
Chain-store sales should increase by 3 percent in 2012, Niemira said. "In many respects, [that] is a better number because the inflationary pressures are receding," he added.
Investment sales of retail properties also grew substantially in 2011. Such transactions totaled about $47 billion last year - almost double 2010's figure of $24 billion, said Kevin Imboden, senior market analyst for Real Capital Analytics, who added his firm hasn't finalized the 2011 figures yet.
"A lot of investors are looking for new opportunities," Imboden said. "I think there might be a little bit of a conservative element too because a lot of the centers that were selling were grocery-anchored strip centers ... Everyone needs to go to those centers."
Max Sheets, senior vice president of real estate for Smashburger, said his firm concentrates on what he calls "A+" real estate - meaning the site features high traffic counts, has big-box retailers nearby and is in an area where the household incomes are $60,000 or more. The rents for such locations have risen above their pre-recession levels, Sheets noted. "Thankfully, what I'm starting to see is construction start again," he said.
Jonathan Neville, a partner with the Arnall Golden Gregory law firm, said retail tenants are now frequently trying to negotiate self-help provisions into their leases to allow them to recover the expense of property repairs and maintenance they undertake in the face of landlord inaction.
Such negotiations often feature "an argument as to how you get your money back, whether you can offset rent, whether you just send a bill to the landlord and hope they pay it, orwhether you have to go to court," Neville said.
Self-help provisions are easier for big, national tenants to get, Neville added.
To learn more about the U.S. retail real estate market, listen to the whole show, which is available for download at CREShow.com. The next "Commercial Real Estate Show" will be available Jan. 25 and will provide an update on the U.S. industrial market.