Although several bankruptcies involving high-profile retailers have captured headlines, the sector’s performance continues to improve as physical retailers explore omnichannel concepts to combat e-commerce, according to Marcus & Millichap’s midyear 2018 report.
With vacancy continuing to recede, 10 basis points to 5 percent, landlords are exploring new ways to fill the space. Today’s mix may include off-price retailers, health clubs and several other relatively e-commerce-resistant concepts.
This year’s retail construction activity will remain restricted a by still-tight retail lending environment. Additionally, space vacated by big-box retailers has been cut to smaller footprints suitable for expanding retailers.
Online retailers are entering the brick-and-mortar space to broaden their reach, like Amazon, which decided to forge a physical footprint through last year’s Whole Foods acquisition. In addition, Amazon Books continues to expand in many major markets around the country. Other online retailers like Casper and Untuckit have adopted this strategy and plan to open 200 and 100 brick-and-mortar stores over the next several years, respectively. The inclusion of physical locations comes with several advantages, such as a potential reduction in advertising expenses and the avoidance of shipping costs, which are rising rapidly.
In addition, institutions are focusing heavily on grocery-anchored centers. With recently integrated features like dine-in options, wine bars and more quality products, these assets have become relatively resistant to e-commerce.
On the buying side, investors will remain somewhat tentative, refraining from large deals and targeting more assets in the $1 million to $10 million range. Nationwide, dollar volume has decreased each of the past three years, with 2018 projected to be no exception. Though investor caution exists, supply and demand fundamentals remain strong.
