Despite the elevated risk of a second recession, the recent U.S. debt ceiling debacle in Congress, and the ongoing European debt crisis, prospects are bright for the long-term future of the U.S. economy and the retail real estate industry, attendees heard at ICSC’s Capital Marketplace Conference, in New York City, on Tuesday.

“We see a two-in-three chance the U.S. economy will continue to grow,” said Mark Vitner, managing director and senior economist at Wells Fargo Securities. “All in all, it’s a pretty decent environment for commercial real estate. For the sector, low interest rates and slow growth is good.”

Moreover, the global economy is swinging back in favor of developed countries and away from emerging markets, Vitner said. “The second half of this decade will belong to the developed world,” he said. “By the end of the decade, China will have no labor cost advantage over the U.S.” In addition, the U.S. already has the cheapest cost of energy of any nation, he said. As emerging-market labor grows more expensive in coming years, more manufacturing activity will return to U.S. shores, he predicted, with Southern industrial cities and ports, such as Houston; Mobile, Ala.; and Tampa, Fla., benefiting most.

The U.S. government is not likely to improve the economy until after the 2012 presidential election, he said. “I expected something a little more tangible from Obama,” he said, referring to the president’s presentation on Monday of $3 trillion in deficit-reduction measures that included $1.5 trillion in tax increases, $1 trillion in war savings and $580 billion or so in mandatory program savings. “I don’t want to count the ending of the wars in Afghanistan and Iraq as budget reduction.” Vitner also has low expectations for the bipartisan debt-reduction “supercommittee” charged with making recommendations for cutting trillions from the U.S. budget by Nov. 23. “They might get something done, but it will have to wait until after the election to be implemented. Progress will be made by whoever wins.”

The solution, he said, would be to offer a guarantee on negative equity to homeowners who owe more on their mortgages than the home is worth, so that they can sell the house and apply the guarantee to another purchase. But politicians are wary of being accused of another “bailout,” he said, so they will wait until after the election to pursue anything like that.

“Overall, the ICSC forecast might be characterized as slow and steady, but scary,” said Michael P. Niemira, ICSC’s chief economist and director of research. “Scary in the sense that sales continue to be uneven by retailer, with the midtier most affected, and with more downside risk compared with last year’s session.”

Converting shoppers to buyers has never been more important for retailers that understand this critical retail health indicator, says ShopperTrak co-founder Bill Martin. “The persistently high unemployment and fuel rates along with consumers’ conservative purchasing attitudes will affect spending this holiday season more than in recent years,” Martin said. “Every shopper in a store will be more valuable than last year, and retail stores should be ready to convert their holiday shoppers into sales.”

Foot traffic for the apparel-and-accessories category will decline 1.1 percent this season versus last season, according to ShopperTrak. Electronics and appliance store traffic will fall 4.9 percent, the firm says. “As the economy continues to struggle, tracking daily foot traffic and understanding store traffic patterns is more important than ever,” Martin said. “Retailers who pay close attention to their browser-to-buyer conversion rates and adjust their product offerings, store layouts and staff scheduling to improve those rates will be the most successful this year.”

Investors set sights on outlet sector
The outlet sector is drawing interest among commercial real estate investors, said experts this week at VRN’s Fall Outlet Leasing & Marketing Conference. “There are real signs of growth in the outlet sector,” said Richard W. Latella, an executive managing director who is the Americas practice leader in Cushman’s retail industry specialty group.

Some 36 projects have changed hands over the past two years, accounting for a total of $2.8 billion, versus just $562 million in transactions during 2007–2009. There is particular interest coming from conventional mall REITs such as Macerich, he noted. “There is a flight to quality favoring trophy and core assets.”

Retailers, too, are drawn to outlet centers by lower operating costs and higher sales-per-square-foot performance. Outlet REIT sales hit a record $482 per square foot last year, versus just $437 for mall REITs, Latella said, and annual sales at outlet centers have outstripped those of malls by some 91 basis points on average since 1995.

Plaza Frontenac comprises 482,000 square feet of leasable area and generates some $500 in sales per square foot yearly. It is anchored by Saks Fifth Avenue and Neiman Marcus. Saint Louis Galleria encompasses some 1 million square feet with yearly in-line sales of about $585 per square foot, and its anchors are Macy’s, Dillard’s and a Nordstrom that opens today.

“Plaza Frontenac is certainly a retail gem in the Midwest, and we couldn’t be more thrilled to add it to our portfolio,” said General Growth COO Shobi Khan in a prepared statement. “Owning both Saint Louis Galleria and Plaza Frontenac allows us to further solidify our presence in the St. Louis trade area and create retail synergies between the properties so both can flourish.” The venture represents an opportunity for the Canada fund to diversify its U.S. real estate portfolio, says Peter Ballon, who heads the fund’s Americas real estate investments division. Said Ballon in a prepared statement: “We look forward to partnering alongside General Growth whose experienced management team and proven track record are well-aligned with our strategy to acquire and hold high quality assets over the long term.”

Investors laud Simon for climate-change disclosure
An influential group of investors that monitors the carbon-emissions reports of public companies is praising Simon Property Group for its approach to climate-change disclosure. Among S&P 500 companies, Simon Property was No. 10 for transparency in environmental-impact reports, according to The Carbon Disclosure Project’s ranking. This group of 551 institutional investors holds $71 trillion in assets under management.

Simon Property scored 96 points out of 100, based on responses to a questionnaire about greenhouse gas emissions, reduction targets, and risks and opportunities associated with climate change. The average score was 69 points. “Companies that make the carbon disclosure leadership index have demonstrated good internal-data-management practices for understanding greenhouse gas emissions,” said Paul Simpson, CEO of the Carbon Disclosure Project, “and have shown a strong awareness of the business issues related to climate change, including climate-related risks and opportunities.”

TRANSACTIONS
Woodland Paradise Corp., of Colorado Springs, Colo., sold Chapel Hills East, a 178,252-square-foot power center in Colorado Springs, to an institutional investor for $25 million.

Suburban Asset Management, of Norfolk, Va., acquired Stonebridge Village, an 85,499-square-foot neighborhood shopping center in Cary, N.C., for $14.3 million from 1st Carolina Properties, of Cary.

Gladstone Development Corp., Greenwich, Conn., bought The Shops at Ledgebrook, a 105,000-square-foot shopping center in Winsted, Conn., from Yassky Properties for $15.4 million.  A Super Stop & Shop and a Rite Aid are anchors.

THE COMMON AREA
Retail development in the U.K. is set to plunge as capital grows ever scarcer, according to Cushman & Wakefield. Roughly 199,000 square feet of retail space is slated to open next year, a rate on par with the 1950s. “We predict an upswing in development activity towards 2015,” said Toby Sykes, a partner in Cushman’s retail services division.

Meanwhile, vacancy rates at the U.K.’s top 20 shopping malls and High Streets fell to a 10-year low in August, helped by strong demand for top-flight space from international and domestic retailers, according to research firm DTZ. Said Hugh Radford, DTZ’s head of U.K. retail: “International retailers currently acquiring space in the U.K., such as Forever 21, Hollister and Victoria’s Secret, are focusing on the top 10 or 20 locations before moving on to continental Europe and Asia.”