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EXECS: 2005 RETAIL OUTLOOK BRIGHT

BY BRANNON BOSWELL

NEW YORK — Despite a slow kickoff to the holiday sales season, retail real estate executives are upbeat about 2005.

A host of new tenant concepts and pockets of increasingly wealthy demographics will drive demand and rental rate growth in the year to come, Bernard J. Haddigan, managing director of Marcus & Millichap’s national retail group, told ICSC’s New York Conference last month. “2005 through 2010 will see renewed job and population growth,” he said.

Retailers are also building strategies around consumers’ changing attitudes toward dress, said Gregory Maloney, SCSM, president and CEO of Jones Lang LaSalle’s retail division. “Fashion is coming back. We finally have color and more women who want to look good and dress up,” he said.

Such renewed fashion interest has spurred retailers, including Gymboree’s Janie & Jack and Chico’s White House/Black Market, to expand. These trends helped maintain sales at shopping centers and boost department store sales, Maloney said.

Many New York show attendees had the 1031 exchange market on their minds. That market is driving retail property investment these days, said Haddigan. Property holders want to sell centers that have appreciated sharply in the past few years, and they are being pursued by investors who seek higher returns than the stock market can offer and who are eager to take advantage of low borrowing costs, he said.

Exchange buyers make up about 65 percent of investors in single-tenant properties and 55 percent of multitenant property buyers, said Haddigan, predicting that the market’s momentum is not going to let up soon. “Cap rates will continue to stay low through 2005,” he said.

Meanwhile, Wal-Mart reported a long-term opportunity to open 2,700 more U.S. Supercenters, and the company is willing to tweak its format to appease local communities, Robert W. Stoker, the chain’s senior real estate manager, told the conference. “We want towns to look at Wal-Mart as a retailer that wants to fit in with the community,” he said.

Of the 950 Supercenters Wal-Mart has in the pipeline, said Stoker, several will stray from the discounter’s traditional prototype. A Supercenter in Round Rock, Texas, for instance, features a Main Street-style exterior, with varying storefronts and elevations diminishing the store’s large scale. Another store, in Rego Park, N.Y., will occupy several levels in a high-rise.