IRVINE, CA—In keeping with the trend of Millennials moving into urban areas, a fair amount of urban retail units are being plucked by investors, Auction.com’s EVP Rick Sharga tells GlobeSt.com exclusively. The firm recently reported closings on 32 commercial assets in February with a total combined value of $109 million, and the sale of retail properties accounted for more than half of those closings at $52 million, giving the retail sector a lead in deal volume for a second consecutive month. We spoke with Sharga about the factors influencing retail deal volume and what he foresees for the sector in the near future.
GlobeSt.com: What factors are influencing retail deal volume?
Sharga: At the beginning of the year, we anticipated weak big-box sales because of store closings by companies like Radio Shack and because of the effect of e-tailing on these stores, but we’re seeing more existing structures being repurposed into multi-use facilities. We’re probably seeing people take advantage of prices on retail assets not rising as quickly as in some other sectors and extremely favorable cap rates for entering the market now. Also, investors are cherry-picking prime locations or types of businesses likely to be more successful in today’s economy, like food, entertainment, office and even residential opportunities in what had been strictly retail in the past. We’re seeing the conversion of retail into other, more profitable uses.
GlobeSt.com: What types of properties are selling, and in which geographic areas are they selling the strongest?
Sharga: We’re seeing not so much big-box spaces moving, but everything from shopping mallsto a fair number of urban smaller space units. This tracks with what we’re seeing with the population—Millennials moving into urban areas. There are a fair number of urban units being moved right now.
GlobeSt.com: What do you predict will happen in the retail sector for the rest of the year with regard to valuations?
Sharga: It sounds trite to say it, but if demand continues we will probably see a little strength in pricing as the year goes on. A lot of this is tied into job and wage growth. Consumers right now are actually saving money at a higher rate than they have in a number of years. If job creation and wage growth continue to improve, we will see more buying, and retail will be more attractive again. The safest notion is that we’re probably not going to see a ton of new construction in retail, and unless we do see an unexpectedly high amount of new construction, that will protect the assets on the market—supply and demand.
