Ten-X Commercial: E-Commerce, Store Closures and the Impact on the Retail Real Estate Sector
IRVINE, CALIF. — Ten-X Commercial, the online commercial real estate platform formerly known as Auction.com, reports that the U.S. retail market is “largely suffering” in the face of rising e-commerce and massive store closures. In its latest Retail Market Outlook report, Ten-X expects the retail sector to show little to no improvement in the immediate future.
By fourth-quarter 2022, the Irvine-based company forecasts that the effective rental rate per square foot for the national retail sector to increase by only 1 percent and the vacancy rate to increase by 10 basis points.
Due to store closures, Ten-X reports that retail space absorption has been poor and developers have scaled back construction of new retail spaces as a result. According to Coresight Research, more than 8,560 store closures have already been announced year-to-date in 2019, a steep increase from the 5,524 in 2018. These include by brands such as GNC, Walgreens, Bed Bath & Beyond, Kitchen Collection, Forever 21, Avenue, Dress Barn, Charming Charlie and LifeWay Christian Stores.
In their announcements, most brands detail that their profits were sunk due to competition from e-commerce companies. Ten-X reports that e-commerce has doubled its total share of retail sales over the past decade and is now at an all-time high of 16.5 percent. (Sales do not include automobiles.)
Ten-X reports that deal volume is on the decline for U.S. retail properties. In the second quarter of 2019, deal volume was down more than 20 percent year-over-year, with the caveat that Brookfield Property Partners’ acquisition of GGP may have falsely inflated total transaction volume in 2018.
In contrast to a nationally weak retail market, Ten-X’s retail transaction activity has increased. Total visits to retail Property Display Pages (PDPs) have increased 35 percent since third-quarter 2018, the highest visitation number for the platform in four years. Similarly, the number of visitors to Ten-X Commercial’s due diligence document vaults for retail properties has increased 22 percent year-over-year, and is on track to reach an all-time peak by the end of 2019. Additionally, the total number of retail assets brought to auction on the platform is up 22 percent since third-quarter 2018, with growth expected to continue through the end of the year.
“Despite a struggling retail market, overall sentiment for strategic retail investments remains strong, as demonstrated by the increase in PDPs, vault visits and rising listings on the platform,” says Peter Muoio, chief economist of Ten-X Commercial.
Despite the national headwinds facing the sector, there are several U.S. retail markets that are projected to fare well for at least the next few years. In the report, Ten-X has unveiled the top five buy markets for retail properties, as well as its top five sell markets:
Texas Dominates Top 5 Buy Markets
Ten-X reports that Austin is the most attractive market to buy retail properties as the metro is forecasted to increase its rental rate by more than 6.8 percent by 2022, as well as decrease its vacancy rate by 90 basis points. Rounding out the top five buy markets are San Francisco, Orlando, Houston and Dallas, which are all projected to increase their rents by at least 4 percent by 2022.
Three of the top five buy markets are in the state of Texas as the local metros continue to grow in terms of both jobs and population. Houston, where the economy faltered somewhat due to a drop in oil prices, is projected to keep about the same vacancy rate of 11.8 percent in 2022. For Dallas, its vacancy rate is expected to drop by 50 basis points to 11.6 percent in the next two years.
Milwaukee is No. 1 Sell Market
On the flip side, Milwaukee is deemed the top sell market by Ten-X as the market is forecasted to decrease its rental rate per square foot by 1.7 percent and increase its vacancy rate by 40 basis points by 2022. “As the Midwest continues to struggle, Milwaukee will see additional retailers closing their brick-and-mortar storefronts in the face of e-commerce,” concludes Ten-X.
Rounding out the top five sell markets are Pittsburgh, Oakland/East Bay, Cleveland and Northern New Jersey. All five markets are projected to decrease their rental rates by 2022, and Pittsburgh is the only top five sell markets that is expected to improve in occupancy.
Ten-X Commercial is a transaction platform that powers more than 90 percent of all U.S. commercial real estate sales transacted online. The platform allows brokers, sellers and buyers to access data-driven technology and transaction tools to expand market visibility and decrease time to close. Ten-X Commercial’s investors include Thomas H. Lee Partners LP, CapitalG (formerly Google Capital) and Stone Point Capital.
— John Nelson