Commercial Real Estate Finance

Even though many retail markets have struggled since the recession and the advent of e-commerce, there are many markets, submarkets, and property types that still show potential for retail investors and operators. From IRR’s Viewpoint 2013, based upon data from Real Capital Analytics, here are the Top 10 Retail Markets of 2012:

10.Seattle

9. Houston

8. Nashville

7. Phoenix

6. Dallas

5. Boston

4. Washington, DC

3. Manhattan

2. Chicago

1. Los Angeles

This ranking is based on total transaction volume, as opposed to sales per SF. If we were going by sales/SF, Manhattan would have been the undisputed champion (surprise, surprise), followed by San Francisco. As in previous rankings, our Top 10 includes a pretty wide range of numbers, and there’s a substantial drop-off after the first few markets. Manhattan and Chicago both raked in well over $750 million in retail income for 2012, while Los Angeles rocketed past $1.2 billion. At the other end of this ranking, Seattle and Houston each received only a third of LA’s total.

Keep in mind, this ranking would look different if we measured retail income per capita, or by income per square foot. The sheer size of the top three markets distorts the ranking in their favor.

Here’s what IRR says about the retail sector in 2012:

After being one of the most hard hit sectors during the downturn, the retail property sector continued a strong recovery in 2012. Grocery anchored retail properties–especially in infill urban locations–were one of the hottest investment assets across any real estate sector. …nearly all of the surveyed markets were identified to be in recovery.

The report mentions two major exceptions to the trend of increasing transaction volumes: Atlanta and Houston. While Atlanta’s retail struggles are consistent with its general economic and real estate woes, I find Houston’s drop in retail volume more puzzling. My best guess? As one of the few CRE markets to remain relatively untouched by the global financial crisis–and one of the first to show significant market growth thereafter–Houston’s pace of economic growth is simply slowing down. The rest of the country, meanwhile, is finally picking up.  

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