Archive for November, 2015

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2016 Retail Forecast

Wealth for middle-income households has remained stagnant while upper-income household wealth has doubled in real dollar terms over the past three decades, according to Pew Research data. Factoring this data, high-end retail will likely prosper as the high-end population prospers, and commodity/mass-market retail will likely languish. Retail is still a top performer though, having the highest total returns of all property types in two of the last three years, and also having led the long-term performance measures of the ten-and 20-year time periods. Yet, lackluster retail sales growth, limited new store openings, continued store closures, and an overhang of crippled retail centers burden the shopping center sector. While investment prices for retail assets have risen 62% since the bottom of the Great Recession, they remain 7.5 percent below their prior peak (except for a few major markets which have done better).

Generally speaking, cap rates have compressed and transaction volume for retail has risen annually throughout this decade, with volume hitting $91.3 billion for the 12 months ending June 2015. Capital trends also give every indication that retail property investment activity will again be brisk in 2016.

Expect Main Street retail to outperform other submarkets due to the migration of people into urban environments. Also, as the demographic mix in the United States changes, so does its retail mix. Hispanic-themed centers are springing up, as 1/6 of the U.S. population identifies as Latino. Most major cities already have Asian ethnic enclaves with significant urban retail components. Other immigrant groups can be expected to claim their share of store area too.

The bricks vs. clicks debate continues to play out. All retailers are converging toward multichannel customer access. Physical stores have adopted e-commerce to compliment store operations, and internet retailers (even Amazon) are opening physical stores as a supplement to online sales. The commodity retailers of music, books, travel, and such will not likely return; but most major online retailers have yet to turn a cash profit (even in an era of minimal sales tax), despite their rising stock prices. At some point, they will have to earn a profit from operations to remain viable; and further increasing their market share from the current 9% will be slow dredging. The application of technology presents a bigger operational trend than merely e-commerce. Technology now enables almost any mall, store or retailer to see your personal preferences, and proximity, allowing it to transmit a custom-tailored message or coupon.

Tenant mix continues to evolve, as services not replaceable by the internet move to the fore – primarily food and entertainment, but also lifestyle. Millennials and boomers spend much of their disposable income on restaurants and food. Personal services like massage, dental, yoga and fitness, as well as entertainment, also remain necessary in a digital age.


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San Diego County’s Housing Forecast — BUY Sooner than Later

San Diego County’s net growth in population from birth (approximately 24,000 in 2014) and in-migration (approximately 12,000 in 2014) will out-pace the supply of new multi-family and single-family homes over the next few years. According to the SANDAG Series 13 forecast, 3,574 single-family and 7,138 multi-family units need to be added each year, between 2012 and 2020, to meet the demand caused by this population growth. However, housing permit data reveals single-family permits average only 2,272 per year, and multi-family permits average only 3,153 units per year, despite the economic recovery. This new supply accounts for only 64% and 44% of the annual need, respectively, indicating the County’s already substantial housing shortage is worsening. As demand continues to increase and supply continues to tighten, increased prices and affordability problems are the inevitable result. Rising interest rates will only exacerbate the affordability problem — so the best time to buy a home anywhere in San Diego County is probably sooner than later.


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2016 Investment Prospects Improve for All Major Commercial Property Types

Scale:               1 Abysmal   2.Poor    3.Fair    4. Good    5. Excellent

                                                 2015                     2016*

Retail                                       3.01                      3.19

Hotels                                      3.37                      3.42

Office                                       3.17                      3.43

Multifamily                              3.48                      3.50

Industrial/Distribution              3.61                      3.63

* Source: Emerging Trends in Real Estate Survey

Improvement Image

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In Japan, the word for constant and never-ending improvement is kaizen. Not only is kaizen an operating philosophy for modern Japanese businesses, it’s also the age-old philosophy of the warrior class—and it has become the personal mantra of millions of successful people all over the world. Virtually all world-class achievers, in business, sports, and arts, are committed to continual improvement. They understand that in order to succeed in an ever-changing world, they must constantly learn and evolve. They don’t wait until external influences, such as a teacher, manager, or industry development force them to gain new skills or knowledge. Rather, they are self-motivated learners constantly looking for new ways to improve their performance and deepen their understanding of the world around them.

Kaizen-2.svg“Live as if you were to die tomorrow. Learn as if you were to live forever.” – Mahatma Ghandi

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2016 Upward Housing Trend

According to the Emerging Trends in Real Estate 2016 survey, US residential construction starts totaled 1.2 million for June and July 2015 — the most activity in the last 8 years. Single-family housing, rather than more apartment development, spurred this growth. Historical normalcy appears to have returned, as the inventory of finished new homes for sale now approximates 5 ½ months, and price increases have begun to reflect a shortage of supply. Housing Up
While interest rates will slowly trend upward, the Fed will take great care not to stall the recovery. These conditions set the stage for further gains in 2016, given the existing scarcity of ready-to-build housing lots. The multiplier effect will result in the addition of other jobs, as well as increased economic activity in the retail sector.

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