Written by: Grant Chaney, CCIM
Grant Chaney’s primary role at Colliers is assisting and consulting commercial real estate owners with the valuation of properties, performing in-depth analysis on investment scenarios, and representation in the sale of commercial investment properties. Prior to his current position, Grant was the analyst for Colliers Columbus. Having a background in research and analysis enables him to bring a unique skill set to his team and clients’ portfolio. Keep reading for Grant’s take on the current state of the Midwest retail investment market and what we can expect moving forward.
Market Overview
The Covid-19 pandemic continues to be a disruptor in an already dynamic retail real estate market. For the first time in several years, major markets saw a net increase in vacant space and net negative absorption. In the near term, the majority of market experts expect to see an increase in vacancy between two and five percent over the next 18 months. Overall, the market will experience some challenges as customers change their behaviors and tenants attempt to adapt to the new normal. Those that have been able to update their business model and better cater to the market shift have far outpaced more traditional big box retailers that were already taking fire from their online competition.
Key Takeaways
Investment Activity: Investment activity has been decreasing gradually since 2015 but took a significant plunge in first half of 2020 as the pandemic and consequential lockdown killed or delayed many of the deals in the pipeline.
Current Inventory: Active listings were down throughout 2020 due to investors not wanting to list properties during a time of such high uncertainty. The number has increased but is still below the historical average.
Pricing Uncertainty: Investors who are currently buying and selling are dealing with moving price targets for different sub-classes of retail properties. While some asset types have compressed cap rates, many others have gone up.
Essential Businesses: Real estate backed by long term leases of businesses deemed essential are trading at a premium to where they were only six months prior. The biggest winners are Grocery Stores, Dollar Stores, and food users with drive-thrus.
Hardest Hit: Properties with Food, Service, and Entertainment tenants are seeing cap rate decompression as the market struggles to access the risks associated with these uses and their tenants. The worst affected include Movie Theaters, Bars and Casual/Fine Dining.
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