During the e-commerce surge in the pandemic, with millions of shoppers making their necessity purchases online from home, we heard the term “retail apocalypse” used by some observers who thought they were witnessing the beginning of the end of traditional brick-and-mortar retailers.
Now, while other CRE sectors are grappling with plunging property values, rising vacancy rates, or new supply that can’t be absorbed by lagging demand, open-air shopping centers are on the cusp of what investors are calling a “retail renaissance.”
That’s the term the buyer of a fully leased outdoor mall in San Mateo used to describe his firm’s acquisition strategy.
Cohen & Steers and the Sterling Organization bought a fully leased outdoor shopping mall in San Mateo in December for $127M from the Teachers Insurance and Annuity Association of America (TIAA).
The sale price of about $547 per square foot for the Bridgepointe Shopping Center, located at 3000 Bridgepointe Parkway straddling San Mateo and Foster City, was $2M more than what TIAA paid to acquire the 232K SF open-air shopping center in 2017.
Open-air shopping centers in the U.S. have been seeing historically low levels of vacancy in a sector with only a trickle of new supply being delivered. According to CoStar data, only 6.2% of such space is available for lease, the lowest level since 2006, creating solid fundamentals for rent growth.
The 24-acre Bridgepointe Center, built in 1997 on the site of the former San Mateo Fashion Island Mall, is located in a dense, high-income suburban setting with less retail space than the U.S. average.
According to New York-based Cohen & Steers, pricing for open-air, “necessity-driven” shopping centers has bottomed and market dynamics are swinging the pendulum in a positive direction.
Cohen & Steers is “deploying capital to aggressively take advantage” of these strong fundamentals, James Corl, head of the firm’s private real estate group, said in a recent blog post.
“Open-air shopping centers are the only major property type that is experiencing an acceleration in rental rate growth,” he said.
“We believe that a durable acceleration in earnings growth combined with relatively high current yields will propel shopping center investment performance for some time, a reality that the market has yet to fully recognize."
“With capital values well below replacement cost levels, a resurgence in new retail construction is a long way off,” he added. “Market rents and therefore property level cash flows would seem to have a very long way to run.”
“The strongest retailers didn’t just survive the retail apocalypse, they are thriving with internet-resilient models and are driving a Retail Renaissance amid extremely low property supply,” Corl said.