- Uptick in Competition: Due to the liquidity of the debt capital markets and the pursuit of higher yields, all lender groups including life companies, CMBS, banks, pension funds and debt funds are actively looking to place capital on retail product on a national basis at loan-to-value ratios of 65-85 percent. Grocery-anchored assets in primary markets continue to attract the most aggressive capital, however the availability of capital for all product types and locations still remain aggressive.
- Loans and Leasing: Non-recourse construction loans are available for significantly pre-leased retail developments (1.0x coverage or better). In addition, there is a significant amount of liquidity for redevelopment opportunities on well-located existing assets that have been mismanaged or need capital upgrades to attract national tenants.
- Institutional Activity Increase: Institutional investors are still under-weighted in retail and are most actively pursuing trophy assets in major markets and grocery-anchored strip centers. Expect an increase in acquisition financing, primarily funded by life companies and CMBS as they will continue to have a heavy appetite to help balance out their allocations.
- The Oil Price Effect: While the economy seems to be in shock about the rapid decline in oil prices, until there is a noticeable decline in jobs on a national basis, lower oil prices are viewed as positive for the retail sector. The money saved on fuel costs is additional discretionary income people are spending on retail goods. Increased retail activity from consumers builds investor and lender confidence in the sector.
- Social Media and Sales: Two key factors play a significant role in driving consumers to brick and mortar locations: highly-differentiated products and social media. While there is plenty of competition for value-priced products, consumers are willing to pay a premium for unique products that are typically not available online, while social media provides retailers and retail owners with additional touch points to the consumer. For example, retailers tweet out coupons for consumers to download on their phone to bring into a store and retailer owners use social media to drive awareness and promote sales and their respective locations. The more often consumers visit retail locations, the greater need there is for debt to maintain physical assets.
Stay tuned for more from JLL’s “5 Things to Know” about the retail real estate market mini-series, and follow @JLLRetail #RECon15 for more insights.
By: Jimmy Board, Managing Director, JLL Capital Markets