The changing shape of retail continues to batter the retail sector of commercial real estate.
With ecommerce one of the fastest growing sectors, a report from online CRE transaction platform Ten-X says that the green shoots of recovery for retail CRE are weakening.
"In terms of brick-and-mortar stores and the real estate that supports it, the phrase 'retail apocalypse' is no hyperbole," said Ten-X Chief Economist Peter Muoio. "Store footprints are continuing to shrink, and we are seeing droves of traditional retail assets being repurposed or simply demolished.”
He said that the national picture for retail is “decidedly bleak” as demonstrated by the Toys R Us and Radio Shack headlines.
Overall investment in retail properties fell to $15.3 billion in the fourth quarter of 2017, a 19% plunge from a year earlier.
There are some markets worth investing in retail CRE
Despite the gloomy national trend, there are a handful of markets where Ten-X believes it is still worth considering investing in retail real estate.
These include Austin, Denver, Dallas, Houston and Salt Lake City, where expanding populations, job and wage growth, and rising shopper counts, all paint a stronger retail picture.
Conversely, investors should consider selling retail assets held in Detroit, Kansas City, Chicago, Northern New Jersey and Memphis.
"In today's market, there is limited upside for retail fundamentals and we expect further declines in both the number of actual stores and the size of their footprints," Muoio said. "With fewer shoppers coming in the door, brick-and-mortar locations simply do not need as much in-store inventory as they used to. We've seen many traditional retailers partner with e-commerce companies in recent months, underscoring the importance for even brick-and-mortar stalwarts to have significant e-retail components."
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