Two weeks ago, we attended the RECon conference in Las Vegas, a three-day convention for the shopping center industry hosted by the International Council of Shopping Centers. Attendance was up dramatically with over 35,000 attendees and 1,000 exhibitors. Here are a few of our take-aways.
On the show floor the mood was as positive as we have experienced in years. The convention was buzzing and people seemed to be in deal making mode. However, underlying the exuberance is a somewhat tepid economy. Despite the upbeat mood, we noticed a clear distinction between the institutional investors and the rest of the industry.
The institutional side made up of REITS and CMBS financed centers anchored by strong, high end tenants are for the most part thriving. On the other hand, the private equity side is still a work in progress. We mostly spoke with investors and developers working on projects in the $3 million to $20 million range. Projects typically using the developer’s own money or financing obtained through local or regional banks. For the most part, times are still challenging and the focus remains on reinventing or repositioning properties for better yield.
The development pipeline looks to be growing as many retailers plan expansions. Fundamentals are positive and the risk of overdevelopment is low. However, don’t expect to see a lot of spec development. Retailer consolidation and the continued absorption of post downturn vacancies will mean more re-development of existing centers. “A” locations will get the majority of tenant interest and “B’s” and “C’s” will be left with the scraps. If interest rates rise, many development plans will be shelved.
Investors from Asia and Europe were noticeably present at the event. International activity is up.
Access to Capital
There remains a huge amount of capital in the retail marketplace from lenders, developers, equity providers, and investors but it’s cautiously allocated. Raising interest rates are on most people’s minds but few have a strong sense of when we’ll see the impact from a significant Fed adjustment.
NNN Market Strong
The single tenant NNN space continues to see increased activity. We expect cap rates will remain low while the scarcity of product and influx of investors coming into the market is high.