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U.S. retail completions are expected to remain on par with 2018
Research - APRIL 3, 2019

U.S. retail completions are expected to remain on par with 2018

by Jody Barhanovich

In 2019, retail completions are expected to remain on par with 2018, still at just a quarter of last cycle’s high, according to Marcus & Millichap’s 2019 Retail North American Investment Forecast report. Though developers’ confidence is rising, many of them still remain cautious after overbuilding in the last cycle. This year, half of completions will occur in 10 markets.

Omnichannel customer engagement is taking hold with more online retailers discovering the need for a physical presence as it can substantially impact sales. Because of this, many digital brands are rapidly expanding their brick-and-mortar footprints.

Multi-tenant vacancy will continue to fall this year, dropping to 5.6 percent while moving the overall retail rate down to 4.7 percent. Net store openings should far outnumber closures again in 2019, boosting demand and asking rents.

Amid ongoing trade disputes between the U.S. and China and the slowing European economy, global growth has begun to lose momentum. Financial market volatility, combined with elevated caution, has sponsored a flight to the safety of Treasury securities, pushing the 10-year yield below 2.8 percent to start 2019.

Volatility in the broader market has begun to seep into the underwriting environment, with lenders being more cautious and conservative than in prior years of the cycle.

The retail investment outlook looks promising. Despite continued store closures and the erosion of product-based retail by online competition, retail center owners have repopulated storefronts with a variety of service-oriented businesses, from healthcare to fitness to dining to a variety of entertainment venues. As this transformation has gathered momentum, properties have stabilized and values have gathered momentum.

Buyers are broadening their searches to bolster portfolio yields. Private investors consider smaller metros as an opportunity to acquire assets while increasing the spread between returns and the cost of capital. The limited construction of new retail space in many secondary and tertiary markets has funneled space demand into existing properties.

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