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Marcus & Millichap Research Reports - Retail

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2010 DFW 2nd Quarter Retail Market Update

The Dallas/Fort Worth retail market has begun to emerge from the relatively brief, albeit sharp, local recession, with vacancy projected to stabilize by year end and rent growth anticipated to resume in early 2011. Rent renegotiations have largely dissipated, though new leases are being signed at 2004 effective rent levels. Nonetheless, an impressive economic and demographic outlook has attracted expanding retailers to the Metroplex.

2010 National Retail Outlook

The economic recovery continues to make headway, with GDP posting its third consecutive increase during the first quarter. Although the headline rate of growth reflects a deceleration from late 2009, underlying shifts among the contributing components provide cause for optimism. This report discusses these positive signs of growth that affect the retail sector of commercial real estate.

2009 Real Estate Investor Outlook

The recent financial strife may add to the woes of an already lackluster investment market. Commercial and apartment property sales during the first 10 months of 2008 totaled $121 billion�less than one-fourth of the $502.6 billion in properties that traded hands during all of 2007, according to New York based Real Capital Analytics. The research firm tracks deals in excess of $5 million. That being said, 51% of survey respondents expect to increase commercial real estate investment in the next year, while 37% expect to maintain the status quo in the coming year, and only 11% anticipate a decrease.

2009 National Retail Report

The retail sector is in the midst of a perfect storm caused by the housing crash, frozen credit markets and overbuilding. Job losses accelerated to extreme levels beginning in September 2008, further pressuring consumers and retailers. The excess spending of 2003-2007 has shifted to extraordinary caution on the part of consumers and businesses, wiping out numerous retailers and forcing many into survival mode. In turn, retail real estate is feeling the pain. Unprecedented government intervention will eventually help to restore confidence and capital flows, but progress will be slow and fragmented.

2009 Economic and Retail Overview

Recession Drivers Shift. U.S. GDP contracted at an annualized rate of 5.7 percent in the first quarter of 2009, following a 6.3 percent decline in the previous quarter. Despite dramatic decreases in both quarters, the components of change varied significantly. Weakness during the fourth quarter was driven by a pullback in consumer spending, while contraction in the first quarter was due largely to drastic cutbacks in business spending and inventory reductions. During the first quarter, consumer expenditures made a positive contribution to GDP for the first time since mid-2008, and consumer confidence began to improve. Retail sales slipped in March and April before rising minimally in May, however, as consumers remained cautious, driving the savings rate to its highest level since 1995.

2010 Economic and Retail Overview

Unprecedented government stimulus and intervention prevented the worst-case scenario for the U.S. economy and helped bring the Great Recession to an end. Housing market weakness and job losses, albeit at drastically reduced levels, however, continue to challenge the onset of a sustainable expansion cycle. Economic headwinds, including elevated unemployment and high levels of consumer and public debt, will persist throughout the first half of 2010. Tight credit markets will damper the possibility of a surge in spending this year, even if consumer sentiment steadily increased. Risks of another recession will linger as a result, but a growing number of indicators discussed in this report point to a choppy muted recovery as the most likely scenario.

2010 National Real Estate Investor Outlook

After a quiet year of investment sales, buyers are preparing to forge ahead with acquisitions in 2010. Two-thirds of investors (65%) responded to the 6th Annual Investment Survey plan to boost their investment in commercial real estate over the next 12 months. That figure is up from 56% in the third quarter and 51% a year ago. The exclusive survey is produced jointly by National Real Estate Investor and Marcus & Millichap. This report will examine the challenges and benefits of investing in commercial property over the next year.

2010 National Retail Report

The Great Recession has given way to cautious optimism for 2010 and expectations for more robust growth in 2011 and 2012. Most indicators suggest the economy has achieved neutral status, if not one of modust growth. Last year was among one of the worst for retail property owners, as the economic shock led to soaring store closures, tenant bankruptcies, and lease renegotiations. The worst of the crisis has passed; however, retail fundamentals will soften in 2010 before bottoming.

2009 2nd. Quarter DFW Retail Overview

The retail market in Dallas/Fort Worth is now struggling through the recession with the rest of the country. After recording strong economic growth through much of 2008, lower energy prices are putting pressure on the local job market. In fact, more than 30,000 jobs associated with the Barnett Shale natural gas field have been eliminated since last summer, weighing down local consumer confidence and retail spending. Although the decline in Dallas is more pronounced than in its Metroplex counterpart, retail sales dropped significantly in Fort Worth before the economy began to contract. As a result, the western half of the market will likely begin to recover earlier than Dallas. On the eastern side, where owners have been reluctant to aggressively drop rents despite rising vacancy, operational upside will consist of filling vacant space. Much of the new supply is in the Dallas suburbs, however, making the proposition of re-tenanting existing assets difficult in the current economic climate.

2008 Real Estate Investor Outlook

Despite a softening economy and turmoil in the capital markets, investors continue to have confidence in the U.S. commercial real estate industry. A survey of more than 1,000 private and institutional real estate investors shows only one in five respondents believe the economy will be stronger in 2008, yet the majority want to invest more funds in the sector.

2008 2nd Qtr. DFW Retail Overview

Steady demand from an expanding population and relatively healthy job growth will be outweighed by additions to supply this year, pushing up retail vacancy rates in Dallas/Fort Worth. The rise is forecast to be shortlived, however, as the Metroplex boasts one of the most robust job markets in the country. Much of the local employment market�s strength is due to the stable housing market, which has avoided an overheated fervor.

2008 2nd Qtr. DFW Construction Overview

Developers are expected to complete approximately 5.6 million square feet of retail space in 2008, down from 9.2 million square feet , after peaking last year. A sizable portion of this year�s deliveries will come online in the first half of 2008.

2008 Economic & Retail Overview

Despite the increase in GDP, weakness has clearly spread beyond the manufacturing, housing and banking sectors, as evidenced by the loss of 260,000 jobs year to date. Business and consumer confidence have slipped, which combined with tighter credit markets and high oil prices, has created a somewhat selfpropelling downturn that is likely to last until midyear.

MARCUS & MILLICHAP

INDUSTRY

Our mission is to be the leader in the sale of retail investment properties. We achieve this through having a complete understanding of our market, all its properties as well as the motivations, goals and objectives of every client we may represent, so they may create and preserve their wealth.

Our primary focus is multi-tenant shopping centers in Dallas/Fort Worth (DFW) and throughout Texas as well as single-tenant (STNL) properties throughout the southwestern United States. We offer an extensive inventory of exclusively listed multi-tenant shopping centers and single-tenant net leased (STNL) investments, that may be double-net (NN), triple-net (NNN), absolute-net or ground-lease assets.

Many of our Sellers consist of developers, owners, investors and/or lenders of commercial retail properties that need to sell a particular investment or portfolio of assets. Our Buyers are local and out-of-state investors that need to fill a 1031 exchange requirement or who want to invest equity in commercial real estate.

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