Retail Is Coming Back Nicely

In my last post I showed the first quarter sales results by property type for our region.  Not surprisingly, 42% of all sales for the quarter were apartments.  What was surprising was the strong showing from retail: 29% of all sales in the first quarter.  So I thought this deserved additional investigating.

The CoStar Group recently had a webinar on the U.S. retail market.  The bottom line of their presentation - retail is coming back nicely.  Shown below are two charts that support their thinking:

As you can see from the chart retail has had 9 consecutive months of positive sales volume (people are buying more) and has been averaging about 6% annual growth since September of 2010. 

Absorption of retail space is also improving nationally as shown in the chart below:

After two negative quarters of negative absorption, we've now experienced 7 consecutive quarters of positive net absorption.  During this time period 80 million SF of retail space has been absorbed. 

Other interesting tidbits from the CoStar webinar were:

• Job creation, which spurs retail sales, has been positive for the past 5 consecutive quarters.
• Construction of new retail space has been almost nothing for 2010 and is projected to continue that way through 2011, which bodes well for further net absorption of retail space through the rest of this year.
• Sales of distressed retails sales is moderating.  Distressed retail sales peaked at 21% of all sales during the 2nd quarter of 2010.  During the first quarter of this year, distressed retail sales were estimated at 17% of all sales.
• Cap rates for retail properties have compressed significantly.  Retail cap rates peaked at 8.5% in the 2nd quarter of 2009 and are now averaging 6.5% nationally.

All of these statistics bode well for further improvement in the retail sector.  Let's hope this trend continues and that other property types can follow in the footsteps of apartments and now retail.