Forecasts on Rockford Commercial Real Estate Industry
Rockford commercial real estate continues to feel the impacts of negative headlines and shifts in consumer trends as the ever-changing landscape works to find a stable footing. In 2017 there was an 18.2% decrease in total retail investment sales volume as compared to 2016, according to Real Capital Analytics (RCA). This follows a 13.7% decrease in volume from levels in 2015. The decrease in sales volume is not solely in retail, but has been felt across most asset types including office and multifamily. The year-over-year decreases are reflective of a shift in investor sentiment. This also signals an opportunity for those groups willing to wade against the current and dive head first into investing in retail real estate.
The retail industry continues to evolve as the needs and desires of consumers change. This is the cycle of retail. The current shifting of retail is similar to the introduction of the regional mall in the 1950s or the emergence of the discount department store in the 1980s. Within the current shifts are healthy and positive statistics on actual store openings and closings:
For every company closing a store, 2.7 are opening one. There were more than 4,000 net store openings in 2017, and another 5,000 are projected to open in 2018. Financial markets have largely started to price the associated negative retail risk into individual asset valuations, and investors are still attracted to well-conceived, well-positioned retail real estate assets. Through discussions with investors of retail real estate, we have compiled a few sentiments and trends of note.
Buyer-seller reconciliation. Compared to a decade ago, Rockford commercial real estate prices are now 20 percent higher for all property types nationally, according to RCA. The gap between sellers’ expectations of pricing and what buyers were willing to pay for their perceived risk gradually lessened throughout 2017. Retail properties remained on the market longer, as the two views began to gravitate toward each other. Well-located retail, value-add and grocery-anchored retail were in highest demand, not as subject to longer marketing periods. In the coming year, the bid-ask gap is anticipated to continue to shrink as the market gains more comfort with retail real estate headline risk and the changing retail environment.
Advisors and equity funds continue to raise capital for retail real estate and many are forming strategies to pursue out of favor retail assets such as power centers with big box exposure, and shopping centers in secondary markets. The deployment of this capital has been slow to occur but is expected to pick up over the first half of 2018. Experts within the Rockford commercial real estate industry are in broad agreement that private capital will be a principal driver of new investment in real estate in 2018, according to a recent report from PWC.