The retail sector has demonstrated accelerated rent growth and tightened vacancy rates across most US markets in recent years. Retail seems to be the overlooked sector, particularly in the Sunbelt. After mild negative tenant demand of -28m sqft in 2020 driven by COVID-19, tenant demand rebounded with an average of 67m additional square feet leased in each of the last three years. Furthermore, retail development has been limited in the last several years due to the impacts of COVID-19. With consumers back in stores, occupancy rates are above average, and rents are increasing by 3% to 4%. Given the growth in market rents, in-place rents are currently 10% to 15% below market rents indicating strong potential for NOI growth as landlords recapture space.
Additionally, as transaction cap rates are generally higher than those for warehouses and apartments, the potential for outperformance seems strong when investing in strip and food & service retail today. CHC’s retail investment strategy is focused on food and service tenancy and generally targets smaller strip, unanchored centers and grocery-anchored centers with surrounding small shop formats. Neighbourhood and strip centres have experienced the highest annualised base rent growth compared to other retail subsectors since 2019. In this subset of retail, bargaining power favours landlords as there is little available space and no significant influx of new supply on the horizon. CHC has observed many tenants are opting for smaller footprints, which are often leased to food and serviceoriented tenants. Generally, small-space leases have been driven by discounters and Quick Service Restaurants (QSRs), such as Starbucks and Chipotle. As technology makes the near-immediate purchase of many goods online a reality, CHC maintains the belief that the convenience of accessing food and services locally, combined with the shopping experience, will continue to drive success within the retail property segment.
COMPLIANCE STATEMENT
The information contained herein is for illustrative purposes only and is intended for qualified investors and is not to be construed as an offer, solicitation, or recommendation with respect to the purchase or sale of any security and is not intended to constitute and may not be relied upon for legal, tax, or accounting advice. Investors should consult their legal, tax counsel, to determine which opportunity is best for their investment. The information shown is considered to be accurate as of the date of delivery or as otherwise indicated in the material, and CHC has no obligation to disseminate any updates or revisions to any information contained herein. Certain information in these materials may be deemed to constitute “forward-looking statements, which are necessarily based upon speculation, expectations, projections, and assumptions that are inherently unreliable and subject to certain significant business, economic, market, and competitive uncertainties and contingencies. Sources can be provided upon request.
