- By Brad Umansky on May 24, 2017
I have just returned from the annual ICSC RECon in Las Vegas after spending the past 4 days with 37,000 of my closest friends in the shopping center industry. The opportunity to network and meet face to face with so many CRE colleagues in one place is definitely invaluable. I always come back from the show with a renewed appreciation of the industry and with plenty of new ideas and knowledge. As I reflect back on the past few days, here are my initial observations of RECon 2017:
- A Very Productive Conference: I don’t recall a conference in several years where so many that I met with indicated that it was a particularly productive and positive show for them. Over and over I heard brokers and tenant real estate managers talk about consummating deals, moving deals forward, or receiving positive feedback regarding their projects.
- There Are Haves and Have Nots: Despite the productivity there is still a lot of challenged retail real estate and the professionals that attend ICSC for the most part are working on the “good stuff”. There is clearly a recognition that many challenged properties will remain hindered due to location, configuration, current tenant mix, inexperienced ownership, and similar problems.
- The Industry is Concerned About Online Sales: There is clear recognition that the retail world will continue to be challenged and will have to evolve due to the impact of e-commerce sales and especially Amazon. I heard multiple times from brokers, developers and cities that they are modifying their business plans to address the changing marketplace. Some tenant rep brokers indicated that their business is more difficult because there are fewer larger tenants to represent so they are now working on smaller deals to earn the same amount as in the past. A few developers shared with me that they are either only doing more “bite sized” projects focused on restaurants or they are using their development skills to develop other product types.
- There is Cautious Optimism: Those that are experienced in the business are cautiously optimistic. They recognize that most cylinders are firing together and the economy seems to be strong and there is opportunity in the marketplace. They also realize that we are deep into an economic cycle of growth, that employment levels are strong and retail vacancy is relatively low. I didn’t sense much negativity or belief that any type of recessionary environment is imminent. Just an acknowledgement that the party has been fun and we all hope that it continues.
- A Lot of Capital – There is plenty of money slushing around in the marketplace, but I am not convinced that it really wants to be deployed, except under the most specific and ideal circumstances. I get the sense that many with money want their capital to be what creates value, but that they do not really want to roll up their sleeves to create value.
- Cap Rates Are Stable to Trending Up Slightly – Sophisticated capital is pricing in the risk of a potential downturn in the economy and the challenges of the internet. This is creating a disparity in the bid/ask for larger projects. Strip centers that have the right location and the food & service based tenant mix are in high demand all over the country. The single tenant market which is mostly filled with unsophisticated or estate (“I just need them to stay in business as long as I am alive”) capital remains very hot due to the needs for many to satisfy 1031 exchanges or deploy low yielding capital or just own something that is easier to own. That being said, single tenant cap rates are still at record lows.
I’m writing this before our Progressive Real Estate Partners team “debriefing”. I will follow up with a more detailed blog after our review with more details about specific retailer trends. In the meantime, my compliments to the ICSC RECon team for putting on another excellent conference.