William Robinson and Brandon Brehm attended an Appraisal Institute Luncheon this past Friday at the Petroleum Club. While the luncheon provides a great opportunity to network with other industry professionals, the highlight of the event was a presentation made by John H. Wright, IV of CBRE. Mr. Wright and his partners head CBRE’s retail business division in San Antonio. Mr. Wright delivered a timely and informative speech on the current state of the national and local retail market.
A few of the major takeaways from the presentation have been summarized below.
While online retailers continue to impact the market share of brick and mortar only stores, a combination of physical stores and a strong online presence appear to be the best solution for most retailers at this time. Several former online only retailers including Bonobos, J. McLaughlin, and Birchbox have found the need for physical stores to complement their online presence.
Retail demand has become increasingly polarized and there is a dog bone effect occurring; wherein, the luxury and value retailers are faring significantly better than the retailers targeting the middle income sectors.
According to Real Capital Analytics, transaction volume for retail properties exceeded $60 billion in 2013 and is on pace to exceed $70 billion in 2014. This is almost back to the prerecession peak of just over $80 billion. Capitalization rates have been in the range of 7.0% to 8.0% since 2011 and appear to be stable to slightly compressing in 2014.
Higher density urban development continues to be in high demand in San Antonio. The redevelopment of the Pearly Brewery has been the catalyst for other successful projects along Broadway including 1800 Broadway and the Mosaic. The Quarry Village is also experiencing very high demand.
Grocery anchored retail development has been very strong in the local market. Both H-E-B and Walmart have continued to expand their presence in San Antonio. Both retailers are very active in the local market and Walmart has had added several new stores including smaller neighborhood stores.
Several new retailers to San Antonio will be opening stores including In-N-Out Burger, H&M, and Pollo Tropical. Taco Bell, Taco Cabana, Ross Dress for Less, and CVS Pharmacy continue to be active in the local market.
Mr. Wright projected strong retail demand in the near term. Due to the lack of good quality retail space, rental rate growth should be achievable. As developers catch up with market demand, over the mid-term the retail market should transition towards equilibrium. Urban/infill development will remain attractive.
The Appraisal Institute once again delivered a quality event with a very informative speaker. The fundamentals of the San Antonio real estate market remain strong and this was evidenced by Mr. Wright’s speech on the national and local retail sectors. For those in need of retail brokerage needs, connect with Mr. Wright online at http://www.cbre.com/john.h.wright.