Retail's Next Act

Could a right-sized retail sector offer opportunities for real estate investors?

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Retail's Next Act

Hines believes a transformed retail sector has emerged after years of turmoil. Investors may very well have missed that brick-and-mortar retail fundamentals have been performing surprisingly well. This, combined with robust job and wage growth, strong consumer sentiment and stabilizing global inflation levels are all signals that the fundamental turnaround in retail should continue. If anything, capital markets have lagged. We believe that these realities are all converging into a compelling investment opportunity.

David Steinbach discusses the retail sector, rate cuts with Bloomberg TV

In this environment, four key themes are emerging:

■ Retail fundamentals appear strong and/or improving globally; regional variations may offer diverse investment opportunities.

What market trends are converging for global investors in the retail sector?

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■ Positive net operating income (NOI/rent) growth + a reset in pricing = a compelling argument to invest now in the right locations and sub-types. Starting in the second half of 2017, the retail sector experienced a steep drop in demand in the face of rapid growth in e-commerce activity. This moment marked the beginning of a structural downward shift in the sector in which U.S. retail NOI slowed to 0% or lower - which prices following suit (see Exhibit 1).

EXHIBIT 1 | U.S. Retail Trailing Annual Price and NOI Growth

EXHIBIT 1

Costar, NCREIF and Hines Research, As of 1Q2024.

■ Limited retail supply in a sector “right sized” for lower demand could help to drive up prices in the next market cycle; a potential bonus are signs that retail demand could be set for a cyclical and secular rebound as wage growth supports consumption and the trend of increasing e-commerce share normalizes.

■ In searching out the “right” retail, Hines research suggests that having a grocery anchor matters for open-air retail subtypes in the U.S., including power, neighborhood and community centers. We believe this holds for all regions, but tourism may also play an outsized role in specific global markets.

Why Retail Now?

We take a closer look at the evolution of retail – and the opportunity that could be unfolding for global real estate investors.

A New Era In Retail

Right Sizing to a New Demand Reality

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Healthy Global Labor Markets

Global Labor Markets Fueling Consumer Consumption

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The Potential Investment Opportunity

The Potential Investment Opportunity

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Learn about the encouraging signs of strength in retail that are potentially leading to improving market fundamentals.

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Disclaimer


The content herein and in the report is provided for informational purposes only. Nothing above or in the report constitutes investment, legal, or tax advice or recommendations. Such content should not be relied upon as a basis for making an investment decision and is not an offer of advisory services or an offer to invest in any product or asset class. It should not be assumed that any investment in an asset class described herein will be profitable. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice. Opinions or beliefs expressed in these materials may differ or be contrary to opinions expressed by others. Certain information above and in the report has been obtained from third-party sources. Hines has not independently verified such information.


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A New Era in Retail