We have successfully invested in retail in Asia for more than 10 years. We understand that the U.S. retail market has struggled of late, especially properties that have big-box tenants. We believe that there might be an opportunity once the market has stabilized. Do you believe that the market has bottomed out or is it still on a downward trajectory? Would it be a smart idea to enter the market in 2019 or wait a little longer?
Answers
It depends on whom you ask. Many investors are buying retail properties for the first time today. They are looking at alternate uses and approaches. I believe that anyone looking at retail needs to work with a professional who is well-versed in the industry. Parts of the market are clearly suffering, as shown by CMBS delinquencies and problems with Sears and
JC Penney. I don't believe anyone should generalize about the market. I would avoid the mid-sized malls and look for opportunities where properties can be re-purposed. Remember that certain chains are still flourishing and one
size doesn't fit all.
The decline in the retail market and industry seem to be continuing, so I don’t think, in general, it has bottomed. While there are some bright spots, such as well-located, grocery-anchored neighborhood retail in areas with a good economy and strong demographics that are not oversupplied with retail, in general the trend of store closings and retail failures will likely continue for a few more years until things bottom out. The country is so oversupplied with retail, especially malls, that it will be a while until we work through this structural shift in the retail industry.
I personally believe that retail has not bottomed out. There is some more to go. Therefore, waiting until second half of 2019 may be the best choice.
I would take a wait-and-see attitude. Big box stores continue to struggle and that means more property will be on the market. By waiting, I mean not investing now but looking at it on a quarter-to-quarter and region-by-region basis.