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Derek Waltchack: 2Q Outlook

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Sign #1: ICSC

In May I attended the annual shopping center convention in Las Vegas (Recon). All the large shopping center and mall owners, national and regional retailers and all the brokers in between attend Recon. I like to think of the show and its attendance number as a barometer for the national economy. To give you some perspective, in 2007 over 50,000 people attended Recon. That number then dipped to a low of 27,600 in 2009. This year 35,000 attended, finally exceeding the 2008 number.

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The mood was very optimistic. One Southpace broker commented that he didn’t hear the word ‘recession’ one time, which is remarkable. Retailers were ready to cut deals and not just talk. We had some success in securing several commitments for a couple new ‘greenfield’ projects we are planning for 2013 and 2014.

Sign #2: Short Term Renewals Declining

Back in 2007-2010, when the future was so uncertain, tenants who had leases expiring often times would ask for a one year renewal instead of the more typical 5 year renewal. According to CoStar who monitors such things, the number of short term leases across the country peaked between 2010 and 2011 when 30% of all retail leases across the country had less than 2 years remaining. That’s twice number of such leases in 2007. Since the fall of 2011 the number of those leases have been declining at a rapid pace Sign

Sign #3: New Store Openings

The retailers in RBC Capital Markets’ database reported plans for 41,713 new store openings in the next 12 months, representing a five-year high in store opening plans. An RBC analysts commented: ‘we find little reason to suspect that planned store openings will pull back in any meaningful way in the near term. Instead, we think the more pertinent question is—where will the industry put all these new stores?” ….hmmm where indeed?

Sign #4

Dearth of New Supply Over the Past 5 Years Take a look at the new supply of shopping centers each year, going back to 1977:

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This graph is amazing to me as you see the incredible amount of new supply that didn’t happen. Most real estate cycles bust when we’ve built too much product. That wasn’t the case in 2008.

Based on all 4 signs, we think the landlord’s hand will continue to strengthen over near term. The rebound in both rental and occupancy rates will be strong. It is at this point in the cycle where you must maintain discipline and use good underwriting.

Thank you for your continued trust in our firm.

Very truly yours,

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Derek, Waltchack

Based on all 4 signs, we think the landlord’s hand will continue to strengthen over near term. The rebound in both rental and occupancy rates will be strong. It is at this point in the cycle where you must maintain discipline and use good underwriting.

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by Suzanne Echols
07.17.2013