The average cap rate for shopping centers sold in the U.S. dropped from 7.9 percent in the second half of last year to 7.5 percent in this year’s first half, according to ChainLinks Retail Advisors. “The heightened sense of economic uncertainty that has been in place since August has impacted the retail investment market,” said Garrick Brown, research director at ChainLinks. “Deal activity slowed during the third quarter as many investors initially reacted with caution. That being said, continued Wall Street volatility is bringing many investors back to the relative security of commercial real estate, and most of our brokers across the country are reporting increased investor requirements over the past few weeks.”

Cap rates for drugstore and grocery-anchored neighborhood and community centers declined over the period, from 7.7 percent to 7.4 percent. Unanchored open-air centers, one of the most challenged segments in occupancy terms, saw cap rates creep upward from 7.7 percent to 8 percent. “Look for both pricing and cap rate trends to become more bifurcated in the months ahead,” said Brown. “With increased investor interest in only the strongest properties in terms of occupancy, and with fewer of those properties available, we should see higher pricing and lower cap rates for these properties. Yet, retail properties with vacancy issues may increasingly struggle to find buyers. The exact opposite trend will take place for the market’s weaker projects.”

U.S. store closures jump blamed on bookstores, shoe retailers

U.S. store-closure announcements in the third quarter jumped 75.9 percent from the year-ago quarter, according to ICSC Research and PNC Real Estate Research. Retail and restaurant chains announced some 800 planned store closures during the quarter, up from about 500 in third-quarter 2010. But most of those announcements came from only a handful of retailers. Book and footwear retailers accounted for 763 of these latest closure announcements. In fact, bookstores reported more space for closure than any other segment, with 7 million square feet. Borders/Waldenbooks alone accounted for 6.7 million square feet of that. The next largest retailer group was supermarkets, with 1.6 million square feet of planned closures. The number of closed stores during the quarter comprised some 12 million square feet, which accounted for 0.3 percent of the total inventory of U.S. retail space. GAFO-type (general merchandise, apparel, furniture and other) retailer announcements shot up 131.6 percent year on year during the quarter.

Retailers embrace mobile-payment technology

American Eagle Outfitters has incorporated the Google Wallet mobile-shopping technology at some American Eagle, Aerie and 77kids stores in five markets. Through Google Wallet, shoppers pay for purchases, redeem discounts and earn loyalty points using their Android smartphones. American Eagle joins OfficeMax in testing the application, and Google says that more retailers are planning to do so. Retailers are particularly interested in Google’s plans to deliver information about discounts and other promotions at strategic times, such as when users check in at the store by smartphone. Google will earn revenue through such offers. Google Wallet also allows phone transactions at a MasterCard PayPass–enabled terminal. Users set up the service so that their purchases, which require a PIN, are charged to either a PayPass-eligible Citi Mastercard or a Google prepaid card. Retailers see this as a means to tailor marketing to consumer preference and purchase history. “A lot like the search ad, the Google Wallet is for retailers an amazing opportunity to develop deeper relationships with their customers,” said a Google spokesman. Others are vying for a place in this mobile-pay market, including AT&T, T-Mobile USA and Verizon Wireless. Meanwhile, some retailers have rolled out their own mobile-pay services. In January Starbucks launched a service enabling in-store purchases using certain smartphones. Observers estimate that it will take up to five years before mobile-payment services gain widespread acceptance in the U.S., given the pervasiveness of credit and debit cards. Mobile-payment programs have flourished in Japan, where consumers view them as an option for low-value cash transactions.

Taubman tenants report healthy sales growth

Sales growth at Taubman Centers’ malls boosted the firm’s rental income in the third quarter, executives said on a conference call. Taubman tenants saw sales climb 11.7 percent on average from a year ago, bringing the year-to-date increase to 13.3 percent and the company’s 12-month trailing sales to $615 per square foot. The firm’s luxury tenants are performing well, with Burberry, Coach, Gucci and the LVMH brands leading the pack, said CEO Robert S. Taubman. Abercrombie & Fitch, American Eagle, Express, Forever 21, H&M, J. Jill, PacSun and White House Black Market were outstanding performers too, he said. “We’ve now reported seven quarters of double-digit tenant sales increases,” Taubman said. “With this fantastic sales growth, we’re signing leases at attractive rates and at a faster pace — about 50 percent more leases than at this time last year.” Taubman posted a 3.8 percent increase in average rent per square foot versus the same period last year. Opening rents have been particularly strong, Taubman said. “We now expect to be up about 3.5 percent for the full year,” he said. And as sales have accelerated, total occupancy costs have fallen. “We’re now expecting occupancy costs in the range of 13 percent for 2011,” he said. “This indicates significant built-in rent growth for the future.” The portfolio was 93.1 percent occupied at quarter-end. Net operating income was up 8.6 percent, excluding lease cancellation fees. Rents, percentage rents and recoveries were the primary drivers, Taubman said. The firm is boosting its full-year NOI growth projection from 2 percent to 3 percent.

THE BOTTOM LINE

PREIT lost $57 million in the third quarter, up from a loss of $3.6 million a year ago; Funds from operations rose to $29 million from $23.2 million a year ago, while net operating income was about flat, at $68.6 million. Executives said write-downs on the value of two malls contributed to the quarter’s loss. 

Ramco-Gershenson earned $3.6 million in the third quarter, versus a $26.7 million loss a year ago. The firm posted $30.7 million in funds from operations during the quarter, versus a negative $1.3 million. Net operating income rose 1.4 percent.

Simon Property posted $274 million in earnings for the third quarter, up from $230.6 million a year ago. Funds from operations increased too, to $606.2 million, from $318.5 million a year ago, and net operating income grew 3.8 percent, while tenant sales rose to $517 per square foot, from $473 per square foot.

TRANSACTIONS

Inland Western and RioCan bought 1890 Ranch, a 486,896-square-foot power center in Cedar Park, Texas, from Endeavor Real Estate Group, of Austin, Texas, for $97.6 million.

Canada-based H&R REIT paid $15.9 million for a 115,000-square-foot BJ’s Wholesale Club store in Voorhees, N.J.

TIAA-CREF bought the 538,196-square-foot PEP mall, in Munich, Germany, from RREEF Real Estate for $589 million.

RETAILING TODAY

Target says it will open 18 U.S. stores next year.

Tiffany announced plans to open its first store in Eastern Europe next summer, in Prague, Czech Republic. Separately, Toys ‘R’ Us, too, is set to open a first store in Eastern Europe, at Blue City shopping center, in Warsaw, Poland, late next month.

THE COMMON AREA

Mace Siegel, who founded mall REIT Macerich in 1964, died Wednesday of heart failure at age 86.

Mayor Michael Bloomberg will be the opening session speaker at ICSC’s National Conference & Dealmaking, in New York City, on Dec. 5.

The Commerce Department reports that third-quarter real GDP grew 2.5 percent, in line with market expectations and the fastest rate since the comparable quarter last year. Consumption accounted for nearly 70 percent of the increase, and the bulk of that, in turn, is attributable to a 3 percent increase in consumer spending on goods and services. ICSC has often noted that sluggishness in that segment the one unusual characteristic of the recovery. This is the strongest showing for the consumer services segment — which by itself accounted for 55 percent of the quarter’s GDP increase — since the second quarter of 2006. Third-quarter sales of U.S. retail properties fell to $8.2 billion from $15.2 billion in the second quarter, according to Real Capital Analytics. Still, this is up from the $6.6 billion in retail property sales of the third quarter last year.

(Source:  SCT Week - Vol.16 No. 43 - October 28, 2011)