I attended ICSC’s New York National Deal Making Conference last week, and was encouraged by the level of activity that I saw over the course of the two days. This conference is important as it comes during a natural inflection point for our industry. It is in the midst of the holiday shopping season which is a busy time for retail regardless of product or center format type. Its proximity to the end of the calendar year also creates some urgency on the part of retailers and landlords to close outstanding deals or agreements before the year ends. However, those two things alone don’t always lead to the level of optimism that I witnessed this year. Here are my three big takeaways from the show:
1. The Election is Over – Regardless of which side of the aisle you’re on, having the election season in the rear-view mirror has allowed everyone to exhale a bit. Every election season and its ramifications are different, but from a historical standpoint, consumers are seemingly unaffected once the race is over. Consumer confidence usually takes a hit during the election because of the negativity – but bounces back in November and December and sales generally reflect that. Both the retailers and developers I talked to were bullish on that remaining the case as we close out 2016 – and a strong consumer is good news for the retail real estate business.
2. Fitness and Food Still Reign Supreme – Boutique fitness concepts and casual restaurant concepts continue to be popular for community centers. One of the keys to our success over the course of our 25 year operating history is our ability to merchandise our centers with a variety of necessity-based retailers so customers can take advantage of making one trip to meet their shopping needs. Recently, as consumers have become more pressed for time combined with the “athleisure” wear trend, a trip to the gym, a casual lunch, and grocery shopping are easily combined. We are constantly looking for these types of synergies when we merchandise our centers, and these types of retailers have been great value additions. I expect the trend will continue.
3. Spotlight on Grocery – Rents have been steady and cap rates have stabilized in the grocery sector. The sector as a whole has seen consistent growth volumes of late and transacted approximately $2.7 billion so far this year. At PECO, we’ve acquired properties worth a total of about $800 million in 2016 and we expect a similar level of activity in 2017. Necessity-based retail centers, like the grocery-anchored centers that are our core business, have been very stable investments as they provide a need-based service, not just a purely discretionary one. I believe cap rates may actually increase slightly next year after lower levels over the past two – if that’s the case I like the opportunities we see in the space even more. I do see an uptick in development but still well below what we have seen over the last 25 years. With some fundamental strength occurring in local economies, the outlook for grocery-anchored assets remains bright.
It was definitely a busy couple of days in the Big Apple – and that typically bodes well for the year to come for our industry.