Is It Everything Must Go for the Retail Sector?

May 17, 2017

The retail sector has been under fire lately as a result of ecommerce trends leading to a large number of retailers filing for bankruptcy or closing stores across the nation. Brick-and-mortar sales are constrained by internet retail, which has increased because of shifting age demographics. Consumers — particularly the millennial generation — increasingly spend their money on experiences rather than goods. Experiential spending — perhaps in an attempt to take the perfect selfie and garner enough likes on social media — is experiencing significant growth.

But it’s not all doom and gloom for the retail sector. While the lower quality B/C malls are struggling to survive in this shifting marketplace (illustrated by vacancy rates in this week’s chart), A-Malls and lifestyle centers are still thriving. In fact, the retail sector represented in the NCREIF Property Index (NPI) was the second best performing sector in the first quarter of 2017 (+1.6%) and also posted a strong 1-year return of 7.6%. Real estate managers that are focused on the A-Malls and lifestyle centers should be well positioned as the trends within e-commerce and experiential spending continue to drive change within the retail sector. The higher quality retailers and locations with easy access in densely populated areas are less easily replaced by online shopping.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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