As stated in Retail Traffic Magazine May edition, the 2012 International Council of Shopping Centers Retail Real Estate Convention (ICSC RECon) showed a “Return to Normalcy” for the national retail industry. The international convention held May 20-23rd in Las Vegas, Nevada had a crowded floor with approximately 32,000 attendees and 1000 exhibitors.
There was a positive buzz in the convention hall with most exhibitors and attendees reporting a rise in meetings and substantive discussions. The industry is not back to its heyday of 2007, but overall it was commonly accepted that we are in a retail recovery.
But what does that retail recovery really look like?
Quiet conversations at the receptions in Vegas were about the situation in Europe and whether a Greece exit from the EuroZone might trigger a new financial crisis. This is the type of information that is keeping the retail market cautious. Most companies used the down time of the recession as a wake-up call – using the last few years to “right-size” their businesses, repair their balance sheets and get into better financial shape - all in an effort to withstand any additional blips in the market might throw at them. As a result, many companies are becoming stronger and taking a fiscally conservative approach to their business moving forward.
Retailers are growing again, however the reality is that back in the heyday if they were opening 100 stores per year they are now opening 10 NATIONWIDE. So while the recovery is real, the enthusiasm is tempered by a healthy dose of realism. Retailers are being more careful and strategic in their decision making.
Additionally, vacancies have leveled-out and even started to fall in the strongest markets. CoStar Group's First Quarter Retail Outlook and Forecast noted the lack of new development has helped fill in the existing supply of retail. This creates a positive domino effect on the market. As vacancies fill up, landlords have leverage to raise rents. And as rents increase this begins to justify the need for NEW development.
There is very little new development taking place across the nation in 2012, however many developers are now talking about building in 2013, 2014 and beyond. The reason for the slow pace is the new conservative approach by developers and lenders about when to pull the trigger on a new development. Back in the boom years, a project only needed to be on average 50% leased to begin construction. In today’s new cautious economy, pre-leasing levels need to hit 70-80% before a project moves forward. Developers are also required to put more equity into a deal, upwards of 40% of the loan-to-value ratio of the project cost.
So the recovery of the retail market could be felt throughout the convention hall in Las Vegas at the end of May. The retail industry overall was upbeat at this year’s convention, sensing an end to the painful recession on the horizon. But the new motto is an adage we all temporarily forgot when the economy was booming. Slow and steady wins the race.