ICSC Special Report: What’s Ahead for Retail Investment?
After a slow year for capital markets and investment, executives attending ICSC’s annual New York City event found reason to expect broad-based momentum to benefit the retail sector in 2025.
“What is a little different is that a lot of institutional capital that’s been sitting on the sidelines is starting to get impatient,” Joseph Lowry, senior vice president for business acquisitions and development at Levin Management Corp, said last week. Returns in the sector are more attractive compared to other property types, he added.
The biggest recent example of the new institutional interest in the sector is Blackstone’s $4 billion acquisition of Retail Opportunity Investments Corp. The acquisition of the grocery-anchored REIT specialist represents “the first time that Blackstone has been active in our space in a very long time,” noted Jeff Edison, chairman & CEO of Phillips Edison & Co. A big plus for retail real estate investment, Edison added: “The psychology is starting to move toward a more consistent view that we’re in a stable environment.”
READ ALSO: ICSC Special Report: Retail’s Big Space Race
Along with stepped-up interest from institutional investors, ICSC attendees predicted that debt capital will be more available. “We expect more lenders to enter into the market,” said Matthew Mousavi, senior managing principal & national co-head of net lease and west investment properties at SRS Real Estate Partners. Likely examples: smaller banks, credit unions and CMBS issuance, he added.
Boosting investor appeal
Multiple factors may be adding to retail assets’ appeal to investors. “The store has become much more active in the overall supply chain,” observed Brandon Isner, head of retail capital markets research at Newmark.
The retail supply chain has become dramatically more efficient over the past 10 to 15 years, as the inventory-to-supply ratio has improved drastically, he added. Stores fulfill a significant share of online purchases, and when customers return items to stores, they regularly buy something else.
A variety of capital markets challenges will linger into 2025. “Refinancing is top of mind for us,” because of the elevated cost of capital when loans come due. A property may have been financed at 3.5 percent, but that rate won’t be available again when the time comes, he noted. Nevertheless, he added, “We’re not seeing a flood of distress.”
Retail redevelopment rises
Site selection and financing remains a challenge in much of the country. That points to redevelopment as a strategy of choice. Densification of retail properties with multifamily, office or other asset categories can be a winning strategy all around. As Isner noted, “Office joined to retail will (often) outperform the market as a whole.”
“Landlords are looking to bring an older property up to current standards,” noted Levin Management CEO Matthew Harding. At Blue Star Shopping Center, a grocery-anchored property in Watchung, N.J., the firm recently led a makeover highlighted by upgrades to such areas as landscaping, parking and facades.
The $12 million project also features new public space and infrastructure for electric vehicle charging. A ground-up, 72,000-square-foot Shop Rite will replace the supermarket chain’s former store at the center, which will be reconfigured to accommodate multiple tenants.
Mixed-use redevelopment will also continue to be a key strategy. “Nobody’s building 1 million-square-foot retail anymore,” observed Kristin Mueller, president of JLL’s property management unit.
She cited Bluhawk, a mixed-use destination in Overland Park, Kan., as a showcase for the new wave of retail development. Developed by an affiliate of Price Brothers, the property offers retail, residential and office components. In what’s said to be the first anchor of its kind, the property is anchored by AdventHealth Sports Park at BluHawk. The $125 million, 420,000-square-foot indoor sports and entertainment complex offers an ice rink, basketball courts, a family entertainment component and a training center. “Retail is being redeveloped in close proximity to these non-traditional anchors,” Mueller noted.
The post ICSC Special Report: What’s Ahead for Retail Investment? appeared first on Commercial Property Executive.
