Optimism in retail real estate

U.S. retailers are bumping up their plans to expand thanks to a recovering economy and easing credit markets -- at least that was the conventional wisdom commercial real estate players came away with at last month's International Council of Shopping Centers spring conference in Las Vegas.

The ICSC event is always viewed as a barometer of the retail real estate market -- any news in the field, good or bad, is analyzed and parsed in a gathering of the nation's biggest retail tenants and landlords. This year the analysis pointed to solid optimism that, after two years of cutbacks, retailers are ready to expand again.

One local attendee, retail analyst and consultant Jim McComb of the McComb Group Ltd., said he came away with the message that retailers have pushed ahead their post-recession real estate expansion plans from 2012 to next year, citing rising sales and successful cost-cutting implemented in recent years.

"The thing I sensed in Vegas is that there are more plans to open stores in 2011 as a result of a noticeable optimism and the stronger economy," he said. "Everybody used to be saying there wouldn't be expansions until 2012.

"Clearly, the luxury stores are showing a bounceback right now," McComb added. "Spending in these stores has increased because the stock market recovered nicely. Those customers had cut back very sharply in 2008 and 2009. They're still down from where they were, but they're reporting strong increases in sales and they're selling more to that group at higher prices."

McComb, who has conducted dozens of market analyses for Twin Cities clients, said another reason retailers are more optimistic about expansions is that they have learned valuable lessons from the recession about how to operate leaner and meaner and now are poised to take advantage of depressed retail rents, expanding into areas that might have been too pricey for them in the past.

"Retailers are coming out of the recession in much better positions than they were in at the start of it," he said. "Notwithstanding all the assertions that they were running tight ships before, they really are now. They were buying too much inventory before and had to put too much out on sale, leading consumers to believe they could put off buying and still get good prices later."

The CBRE report included a survey of U.S. retailers that indicated 92 percent are planning to increase store openings and that 70 percent believe the economy is improving. Almost all of them believed their rents would either remain flat or fall throughout the rest of the year.

Although most believed it would take another six to 18 months for the economic recovery to affect their market segments, 34 percent of retailers said business was already picking up, including those in apparel and accessories, telecommunications and electronics and home improvement, the survey showed.

Quiznos to expand

The Colliers report said the worst of the retail market slump appeared to be over and that still-climbing storefront vacancies should begin to level off by the end of this year -- and adding that "clear signs of a recovery will become evident in 2011."

Although consumer spending growth remains modest and the corresponding retail real estate market recovery is still "tepid," Colliers said capital and credit are returning while merger and acquisition activity is resuming, boding well for next year.

That points to loosening capital and credit markets -- at least for highly successful retailers such as Quiznos.

Another ICSC attendee, Lisa Diehl of Edina-based Diehl and Partners, agreed that the gloom that dominated the event for the past few years had dissipated somewhat and that major retailers had gotten a grip on their finances and are looking to grow.

"I'm hearing that just in the last six to eight weeks, people have seen an uptick in leasing activity, restaurants especially," she said. "When I hear those things it kind of confirms my own feelings that if you have a good retail property that shows well, I think it will get calls from prospective tenants."