Cassidy Turley - Retail Forecast 2014

CASSIDY TURLEY

Retail Forecast2014

Cassidy Turley 2014 Retail Forecast | 2

Contents

Economic Outlook 2014 ................................................................................ 3-6

Housing Vs. Policy, Redux .......................................................................... 3

Despite Policy-Induced Hiccups, Consumer Confidence Rising ....................... 3

Consumer Spending Anemic but Income Growth Picking Up .......................... 4

It’s Still All About Housing… ...................................................................... 5

But the Same Challenges Will Remain… ...................................................... 6

Retailer Outlook 2014 ................................................................................ 7-14

Challenges of Weak Economy Supplanted by Challenge of E-Commerce .......... 7

Population Shifts Still a Factor ................................................................... 8

What Are Retailers Looking For? .................................................................. 9

Trends to Watch in 2014: M&A Activity… .................................................... 9

Trends to Watch in 2014: Grocery-Go-Round… .......................................... 11

Holiday Shopping Outlook 2013 … ........................................................... 14

Shopping Center Outlook 2014 .................................................................. 15-20

National Overview .................................................................................... 15

Neighborhood Centers on the Rebound ...................................................... 15

Top Malls Continue to Strengthen .............................................................. 15

Specialty Centers; All About the Outlets..................................................... 16

Adaptation Keeping the Power in Power Centers… ...................................... 17

Construction Returning to Marketplace… ................................................... 18

Class Acts Rule the Roost… ..................................................................... 18

Looking Ahead … .................................................................................... 19

Regional Outlooks ..................................................................................... 21-22

Statistical Overviews ................................................................................. 23-35

Pacific Summary ..................................................................................... 23

Mountain Summary ................................................................................. 25

Midwest Great Plains Summary ................................................................. 27

Midwest Great Lakes Summary ................................................................. 28

Texas/South Central Summary ................................................................... 29

Southern US Summary ............................................................................. 31

Southeast Summary ................................................................................. 32

Northeast Summary ................................................................................. 34

Methodology.................................................................................................. 36

Key Cassidy Turley Statistics ........................................................................... 37

Kevin ThorpeChief Economist2101 L Street, NW, Ste. 700Washington, DC [email protected]

Garrick Brown, EditorResearch Director201 California Street, Ste 800San Francisco, CA [email protected]

CASSIDY TURLEY

Retail Forecast2014


Housing vs. Policy, ReduxThe big economic story of 2013 was the return of the housing

market vs. the negative impact of fiscal policy. With strong gains

that began in 2012, the housing market was poised at the beginning

of last year to seriously bolster an anemic economic recovery. The

weakness of the economy since the Great Recession, of course,

was partially due to a housing market that had remained missing

in action. Certainly, the depth of the economic havoc wrought by

the recession and the deleveraging nature of the downturn were

huge factors that we will continue to work through for years to

come. But, the near complete absence of the housing market

dictated that recovery could never accelerate beyond a snail’s

pace at best.

Yet, heading into 2013, all indicators were up for housing. The

only question was whether this rebound would be strong enough

and deep enough to boost GDP from the relatively weak low 2.0%

range where it had been hovering up to the 3% mark more typical

of “normal” performance. The question itself came down to the

issue of whether or not dysfunction in Washington would continue

to rattle the markets, undermine confidence and, at worst, not only

derail the housing rally but send a fragile economy backwards.

This isn’t exactly a new story. Since the first debt ceiling debate

the potential of our policymakers to undermine confidence has

been clear. Over the course of the past two years, politics has

replaced underlying economic weakness as the major threat to

the U.S. economy. We saw this again at the close of 2012 as the

debt ceiling debate wore on. It reared its head again during the

first quarter of 2013 with the sequester squabble and it may have

reached a new peak this autumn with the government shutdown

and debt ceiling II. Unfortunately, each episode has served as a

significant drag on an economy that is desperately trying to shift

into higher gear. There are major long-term issues that need to be

addressed. Entitlements (primarily Social Security and Medicare)

will eventually bankrupt the nation if current numbers hold. The

deficit remains a major issue. No legitimate economist would

ever argue those points, though there are legitimate questions

in regards to the timing of further austerity measures—which will

slow the economy. Of course, the real problem has less to do with

the underlying issues now than the actual handling of those issues.

The complete lack of compromise and the brinksmanship that

has threatened to undermine the United States’ sovereign credit

rating, inflate the deficit and potentially undermine confidence in

the dollar as the dominant world currency is the problem.

Despite Policy-Induced Hiccups, Consumer Confidence RisingBut there is good news. Certainly, the bad news is that consumer

confidence has swooned with each political squabble. The latest dip

in October of this year was nine points (according to the Conference

Board’s Consumer Confidence Index survey). The last time that we saw

confidence fall so sharply in a single month was in August 2011 when

it fell by 14.0 points. Is it a coincidence that this was when the first debt

ceiling debate resulted in the downgrading of the U.S. credit rating? No.

it is not. The largest most recent drop in confidence prior to that was

in October 2008 as the financial meltdown unfolded and confidence

plummeted by a whopping 22.5 points. Policy, not the underlying

economy, is the biggest economic threat that we continue to face.

Consumer Confidence

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Oct2012

Nov2012

Dec2012

Jan2013

Feb2013

Mar2013

Apr2013

May2013

Jun2013

Jul2013

Aug2013

Sep2013

Oct2013

Consumer Confidence Index

Debt Ceiling II Government Shutdown

Sequester Fiscal Cliff

Index Value: 1985 = 100

Policy Issues Continue to Undermine Confidence

Source: Cassidy Turley Research/Conference Board

But here’s the good news. After each of the most recent policy

driven declines in consumer confidence, we saw relatively strong

rebounds within a fairly quick period. Confidence fell by 14.0

points during the first debt ceiling debate in August 2011. Though

it sputtered for two more months, consumer confidence rebounded

by a combined 23.8 points over the course of November and

December 2011. The fiscal cliff fiasco sent it downward by 13.0

points in December 2012/January 2013. But it surged by 9.6

points in February 2013. The sequester squabble immediately

followed—dropping confidence by 6.1 points in March of this

year. It rebounded by 7.1 points in April. Through November

2013 consumer confidence figures were not yet available when

this report went to press, the likelihood is great that these figures

will rebound the full nine points or more that were lost in October.

Recent patterns are clear. Once these political showdowns go away,

confidence rebounds sharply and at an increasingly fast pace.

Economic Outlook 2014


This bodes extremely well for a holiday shopping season that drew

lackluster forecasts in September and October, but it also spells

out more of what to expect next year when the issue of government

funding and the debt ceiling will be revisited again in February.

While one could argue (and would probably be right) that the

quickening pace of consumer confidence surges following politically

driven scares may have to do with the fact that these spectacles are

starting to become old hat, the fact is that the underlying economy is

improving and that this is impacting both consumer confidence and

consumer spending.

Consumer Spending Anemic but Income Growth Picking UpThe government shutdown slowed the release of a number of key

economic metrics by agencies like the BEA and Census Bureau this

autumn, but some interesting trends became apparent with data

released in October and early November.

U.S. Consumer Spending

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

Total USA Consumer Spending (Billions), Seasonally Adjusted Annual Rate% Monthly Change

Tota

l Per

sona

l Con

sum

ptio

n Ex

pend

iture

s,

(Bill

ions

$, S

AA

R) U

SA, E

xclu

ding

Foo

d &

Ene

rgy

Source: Cassidy Turley Research, U.S. Bureau of Economic Analysis

Following the near-financial meltdown of September 2008, real

consumer spending fell in the United States for six of the following

seven months. Those declines over the final quarter of 2008 were

enough to bring annual totals into the red for the first time in over 20

years and this is despite the fact that those metrics had been largely

positive prior to that. Instead, actual consumer spending on an

annualized basis fell by just under one percent that year.

Despite the challenges faced during the initial days of the Great

Recession and the prolonged, but anemic, recovery period since,

consumer spending has generally been on the rise. It grew by 1.4% in

2009, 4.5% in 2010 and 4.9% in 2011. Of course, part of the strong

gains of 2010 and 2011 were because total spending figures for those

years were being compared against weak totals from the prior period.

Consumer spending levels have since moderated. Annualized

growth for 2012 came in at 3.8%. Meanwhile, year-to-date growth

for 2013 (through September of this year) has only increased by

1.9%. The primary reason for this was the suspension of the payroll

tax holiday in January 2013. This took a real bite out of worker

paychecks and the impact was immediate and obvious. Over the

course of 2012, monthly consumer spending totals increased by an

average of 0.46%. This included a very strong fourth quarter (total

three month gains of 1.1%). Yet, numbers immediately fell with

January of this year. Monthly gains have averaged 0.22% since then.

These lukewarm totals have been enough to help trigger some

extremely cautious forecasts for the 2013 holiday shopping season.

Yet, the International Council of Shopping Center’s (ICSC) chain store

sales index actually posted relatively strong gains of 4.0% that month.

Of course, this index is just an aggregate of same store sales for a

select group of retailers and is relatively narrow in focus, but it does

reflect the relatively conflicting indicators present in the marketplace.

While October’s consumer spending figures were not yet available by

the time this report went to press, we anticipate a return to positive

territory—but anemic positive territory. However, we do expect

growth to pick up over the holiday shopping season and for stronger

numbers to begin to emerge next year. We think that consumer

spending (on an annualized basis) will return to something a little bit

closer to the 3.9% annualized rate of last year. Our optimism is not

based on mere wishful thinking, however. It is based on two basic

factors; the return of the housing market and the recent trend of

income growth that has become apparent.

Inflation continues to be a non-factor. Falling fuel prices in recent

months have helped to play a role in this, but ultimately this continues

to be a reflection of the general sluggishness of the economy.

Continued gradual improvement in the economy over the course of

the next year will mean that it will eventually be a factor to watch. In

the meantime, one of the more encouraging recent metrics came

in the form of strong personal income numbers in September (the

latest period available).

U.S. Personal Income

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

$10,000

$11,000

$12,000

$13,000

$14,000

$15,000

Total USA Personal Income (Billions), Seasonally Adjusted Annual Rate% Monthly Change

Tota

l Per

sona

l Inc

ome,

(Bill

ions

$, S

AA

R) U

SA

Source: Cassidy Turley Research, U.S. Bureau of Economic Analysis


Personal income rose by a strong 0.5% in September, the second

month in a row in which it came in at this level. It is also the fifth

month in a row of gains. Overall growth is now up 3.8% on a

three-month annualized basis. Real disposable income also rose

in September—to the tune of 0.4%. Income growth appears to

be ticking up finally at the national level and in a consistent way.

Consumers remain cautious and so much of these gains have not

yet translated into significant gains in consumer spending. That is

because the saving rate increased to 4.9% in September—the third

straight month in which it has done so. The policy showdown likely

played a role in this and October numbers are likely to be similar.

However, we do anticipate that the trend of income growth will

continue and that, barring any unforeseen shocks to the economy,

consumers will eventually loosen their purse strings as well.

It’s Still All About Housing…The outlook last year was for gradual improvement with gains driven

by housing but tempered by policy headwinds. The outlook for 2014

is the exact same but comes from a vantage point that is further down

that path. The nation’s housing markets made serious gains in 2013,

even if some of that progress was obscured by policy debates.

Nearly every housing market in the Case Shiller 20-City Index has

shown considerable gains in pricing over the past twelve months. The

latest data from the National Association of Realtors reflects pricing

gains in the overwhelming majority of U.S. markets, with a substantial

number of those reflecting increases of 10% or more over the past year.

Home Prices Surging2013Q3 vs. 2012Q3, % Change

*No data available for Charlotte, Salt Lake City or Seattle

Atlanta 42% Sacramento 42% Las Vegas 32%

Jacksonville 29% Riverside 28%

Los Angeles 26% Phoenix 25%

San Francisco 24% Orlando 24%

San Diego 23% San Jose 20%

20% or greater 10% - 20% 5% - 10% 5% or less

Austin 9% Raleigh 8%

Nashville 8% Colorado Springs 8%

DC 8% San Antonio 8%

St. Louis 8% Boston 8% Newark 6%

Cleveland 6% Milwaukee 6%

Portland 15% United States 13% Grand Rapids 12%

Tucson 11% Bismarck 11% Houston 11%

Charlotte 11% Denver 10% Dallas 10%

Providence 10% Tampa 10%

Baltimore 5% Columbus 4%

New York, NY 3% Edison -1%

Little Rock -4% Peoria -14%

Source: Cassidy Turley Research/National Association of Realtors

This is critical because the depth of the Great Recession was due to

the deleveraging nature of this particular downturn. And no other

sector of the economy had more deleveraging to do than housing.

Rebounding pricing means that this is now behind us. The absence of

housing as an economic driver over the past few years was one of the

primary factors behind the length of this downturn. Typically, housing

leads recoveries, but in this instance it has been the missing link.

During the previous three recessions (1980, 1991 and 2001),

residential investment led the way out, growing more than 30% on

average during the first years of recovery. In past cycles, this meant

strong rebounds, thanks to millions of jobs and billions of dollars in

additional economic output. According the National Association of

Home Builders (NAHB), were home construction near its historic

norm, it would create an additional three million jobs. A 2008 study

from the NAHB found that each new home built creates three new

fulltime jobs (from construction to financial services to retail) and

creates $90,000 in tax revenue. Even at half those numbers, the

impact of housing is huge, especially when considering the fact that

housing starts have set new records for lows throughout this downturn.

Most economists agree that the housing sector traditionally has

accounted for between 15% and 20% of the total U.S. economy.

U.S. New Home Completions

Oct-12 Nov-12 Dec-12 1-Jan Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-1330.0

40.0

50.0

60.0

70.0

80.0

New Home Completions

New

Hou

sing

Com

plet

ions

, Tho

usan

ds o

f Uni

ts 2011 Completions: 584.9 2012 Completions: 649.2 2013 Completions (thru August): 616.7

Source: Cassidy Turley Research/U.S. Census Bureau/ Department of Housing & Urban Development

The good news is that sales activity is back, home prices are

rebounding, existing inventories are at near record lows and new

home starts are at their highest level since before the financial

meltdown of 2008. Permits remain high, meaning that this trend will

continue, at least for now. Most of the markets we cover report that

residential developer interest in land remains high with many builders

getting ready for the next wave of new homebuilding. New home

construction should continue to increase and accelerate heading

into 2014 and beyond. Keep in mind that we lost over two million

construction jobs during the recession and that most of those have

not come back yet. We see the potential for as many as one million

new construction jobs through the end of 2014. Likewise, the return

of housing and homebuilding will boost GDP. Our anticipation is that

a return to GDP in the low 3.0% range by the end of 2014 is a real

possibility, if not likely. Meanwhile, consistent GDP growth in the high

2.0% range we think is a given.

Most important to the retail landscape is the impact that rising home

values will have on the marketplace. There is a direct correlation

between housing wealth and consumption. In economic circles, the

common belief has been that for every dollar increase in housing

wealth will increase consumption by roughly $0.05. However,

that theory has been challenged as of late. A 2011 paper by the

economist Matteo Iacoviello found that the most recent numbers

indicate that every dollar increase in housing wealth translates into

http://www.cassidyturley.com/


a boost in consumption of $0.06. Yet, a recently released study by

the economists at Wells Fargo showed that those values in recent

years have been closer to $0.09. Regardless, the potential impact

of an improving housing market for retailers is huge.

U.S. New Home Starts

Oct-12 Nov-12 Dec-12 1-Jan Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-1340.0

50.0

60.0

70.0

80.0

90.0

New Home Starts

New

Hou

sing

Sta

rts, T

hous

ands

of U

nits

2011 Starts: 608.8 2012 Starts: 780.6 2013 Starts (thru August): 819.1

Source: Cassidy Turley Research/U.S. Census Bureau/ Department of Housing & Urban Development

For years we have been dealing with the question of “the new frugality”

and how long would it last. Retail fundamentals have become sharply

bifurcated on all levels, partially due to this issue as pinched middle

class consumers downsized, trading in trips to the Gap for trips to Old

Navy. While retailers and restaurants on the lower end of the pricing

spectrum have thrived throughout the recession, luxury brands and

higher end dining only returned to growth mode a few years ago. But this

still has not happened for the mid-priced retailer, whether we are talking

about apparel, groceries, restaurants or any other retail sector. While we

anticipate that consumers will not immediately revert to old shopping

habits, and that the increasing encroachment of e-commerce will keep

price competition high for many of these retailers, the fact is that the

return of the wealth effect can only translate into increased consumer

sales totals. This will only further strengthen retail fundamentals and

drive greater demand for investment in retail real estate.

Return of the Wealth Effect“A one dollar increase in housing wealth increases consumption 9 cents…” Consumer Wealth and A Changing Wealth Effect, Wells Fargo Economics Group

=Source: Cassidy Turley Research/Wells Fargo Economists

But the Same Challenges Will Remain…If the big economic story of 2013 was policy vs. housing, this year

doesn’t promise much in the way of variety. Policy vs. Housing, Part

II will see the same threats to economic growth as we will continue

to struggle with dysfunction in Washington and, most likely, more

political brinksmanship that may prove to undermine confidence

in the economy. But, while the challenges will be the same, the

underlying fundamentals will be slightly stronger.

Perhaps the biggest difference is that by the middle of next year,

economic growth should be strong enough for inflation to start to be

a possibility once again. This is actually a good thing. The absence

of this threat over the past few years hasn’t been by accident—

it’s been due to how anemic the underlying fundamentals of the

economy were. This will not be the case for much longer, but it

also means that we will almost certainly see the Fed raising interest

rates at some time next year to keep inflationary pressures at bay.

The timetable could vary, but we anticipate this happening near

the end of the second quarter—likely in May or June. So long

as interest rates don’t move too far too fast, the impact on the

overall economy will be minimal. But there will be one. This could

slow the housing recovery and it will certainly have an impact on

commercial real estate pricing as the price of borrowing becomes

more expensive. But that is assuming the underlying economic

fundamentals have heated up to the point of warranting such a

move—which is ultimately a good thing. A stronger economy may

bring higher interest rates, but it will also bring higher earnings,

lower unemployment, greater consumer spending and—for

landlords—better rental rate growth and NOI. In the meantime,

look for the first big political squabble (over the debt ceiling once

again) to start up again in late January.


Challenges of Weak Economy Supplanted by Challenge of E-CommerceThere are two basic factors impacting retailer demand today. The

first remains the economy. While high-end consumers are back,

the middle class largely remains in frugality mode. The good news

is that this is slowly lessening and the return of the housing market

will accelerate this trend. However, in terms of retailer performance

it has led to the creation of what is more or less an exaggerated

hourglass in which luxury retailers are doing well at one end of

the spectrum and discounters are doing well at the other. Many

mid-priced players, however, continue to face challenges. These

challenges have been particularly exacerbated for hard goods

chains that fall into this category because of the additional impact

of the other major factor impacting retail today; the growing

encroachment of e-commerce.

In the meantime, from a retailer growth perspective, we continue

to see strong activity at the far ends of the economic spectrum.

Luxury retailers are back and are looking for space in the nation’s

high street shopping districts and trophy shopping malls. We also

continue to see new concepts from abroad in this category looking

for new flagship locations on top shopping streets in markets like

Manhattan, San Francisco, Beverly Hills and Chicago’s Michigan

Avenue among others. Many luxury chains have also been active

with their off-price concepts—particularly with growth in the

nation’s flourishing outlet center marketplace.

Retail Growth 2014Fitness/Health/Spa Concepts Drug Stores Thrift Stores Grocery (Smaller Format Concepts) Discount Ethnic Organic Upscale

Fast Food Fast Casual Automotive Discounters Dollar Stores

Off-Price Apparel Pet Supplies Sporting Goods Wireless Stores Banks

GROWINGSource: Cassidy Turley Research

Meanwhile, discounters, off-price apparel and dollar stores all

remain in aggressive growth mode and have largely been

responsible for backfilling much of the vacant big box space that

had vexed landlords at the height of the recession. Dollar store

growth remains explosive—the top five national chains have

averaged 2,000 new units annually for the past three years and all

have similar growth plans for 2014. Many are also upping their

capital expenditure budgets for remodels on existing stores—in

particular, a number of major dollar store chains are adding more

freezer and refrigerator space as they seek to expand their offerings

of consumables and compete more directly with traditional grocery

players. Discounters are also upping growth totals. Costco alone

has plans for at least 28 new stores over the next six months; 20 of

which will be in the United States (the warehouse store giant is also

expanding into Canada and Australia). Their plans include major

pushes into the Midwest and the New Jersey/New York markets.

And off-price apparel remains white hot as well. Marshall’s, TJ

Maxx, Ross Dress for Less and Nordstrom Rack have all been in

strong growth mode for the last three years and plan to continue

that trend in 2014, though available quality mid-box space (all tend

to use about 30,000 square feet) is becoming harder to find in

most markets.

Retail Contraction 2014

Bookstores Video Stores Do-It-Yourself Home Stores Mid-priced apparel Mid-priced grocery (particularly unionized) Office Supplies Stationary/Gift Shops Shipping/Postal Stores And Casual Dining (Older, Struggling Concepts Shrinking)

DECLINING

Source: Cassidy Turley Research

The other big factor impacting retailer growth is the impact of

e-commerce. This has now supplanted weak underlying economic

fundamentals as the greatest threat to bricks and mortar retailers—

at least those chains which have responded to the challenge.

The continued growth of e-commerce is changing the buying

patterns of consumers and is radically shifting the way that many

retailers look at their real estate portfolios. This shift has been most

profound for traditional hard-goods retailers. With consumers still

largely in frugality mode and online sales growing at a pace of 15%

or more annually (compared to roughly 5% for traditional retail

stores), many traditional mall retailers have shifted their capital

expenditure budgets away from bricks and mortar expansion

towards building their e-commerce platforms and supply chains.

Retailer Outlook 2014


Rise of E-CommerceOnline vs. Traditional Retail Sales Growth

1,777

1,877 1,915 2,014 2,105 2,189

143 165 190 221 254 292

-5%

0%

5%

10%

15%

20%

0

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013 2014

Y/Y

Cha

nge

%

Gro

wth

in $

B

U.S. Retail U.S. Online Retail

Retail % Change Online % Change

Source: Cassidy Turley Research

This trend will only accelerate over the next two to three years. This

is partially being driven in response to Amazon’s aggressive expansion

of its supply chain network (the online giant plans to expand it’s

roughly 55 million square feet of distribution centers to 90 million

square feet by 2016) as it seeks to roll out same day delivery

capabilities. Whether or not Amazon will succeed in being the first

major company to roll out a successful same-day delivery model may

not actually be the point. Whether they do, or not, they are creating

an infrastructure that will be able to deliver next day delivery profitably.

In the meantime, responding to this threat has become the focus for

many retailers. For example, Kohl’s—which had been expanding at

a rate of roughly 60 new stores annually—has put new stores on hold

as it builds its e-commerce and supply chain platform. Ultimately,

e-commerce will never replace the shopping experience but it will

create many challenges for retailers that do not master a

comprehensive omni-channel approach (bricks AND clicks) to the

marketplace. Likewise, since shopping is about the experience and

e-commerce is about convenience, retailers who fail to grasp that the

new paradigm demands higher levels of in-store customer service

will also face significant challenges ahead. In the meantime, however,

e-commerce will continue to negatively impact demand for bricks

and mortar shop space.

But that is not the only way in which e-commerce is impacting bricks

and mortar retail demand. While mid-priced hard goods players

are largely either in no growth or contraction mode, we are seeing

surging growth from retail chains that do not compete heavily with

online competition. This largely breaks down to food users (grocery

and restaurants) and service related retail (automotive service, dry

cleaners, financial services/tax preparation, etc.). Restaurants, by

far, are the most active sector.

We track the expansion plans of over 3,000 national retail and

restaurant chains and publish the results each spring in our Annual

Retailer and Restaurant Expansion Guide. As this report went to

press, we were tracking plans from retailers to open as many as

38,000 new storefronts over the next year. This number stood at just

over 36,000 units one year ago. While an increase of just over 5% in

total retailer unit demand comes as good news, this number masks

more than a few challenges for landlords.

Roughly 43% of all the planned growth we are tracking currently is

from restaurant users. This number has been steadily on the rise

thanks to an onslaught of new fast casual concepts ranging from

new, higher-end burger joints to new pan-Asian concepts and

upscale wood-fired pizza chains among others. But it is critical to

note that restaurants are now accounting for a larger percentage of

growth in the marketplace than ever before. One year ago, dining

concepts accounted for 38% of all the growth that we were tracking.

Prior to 2011, this category typically averaged 35% or fewer of the

planned units we tracked.

There is no doubt that retailer demand has shifted and this is

already having major ramifications for landlords as tenant mixes at

local shopping centers become increasingly food-based. This also

includes grocery players, which have increasingly become a staple

at power centers and malls. While concerns remain about grocery

consolidation among mid-priced, unionized chains, some recent

developments in terms mergers and acquisitions may result in less

fallout from these users even as a flood of new, smaller concept

groceries ranging from discounters to high-end organic players

remain in aggressive growth mode.

Population Shifts Still a FactorBeyond the obvious impact of economic conditions and the

growing impact of e-commerce on retailer space demand, there

are a number of other macro trends at work that continue to shape

the marketplace. Everything follows basic consumer trends and

continued demographic shifts in the United States continue to

impact retail site selection at its core.

Population Growth

HOT!

WARM!

COOL!

14.1%

12.0%

10.0%

21.1%

35.1% 23.8%

13.2% 24.6%

20.6%

8.7%

6.1% 16.9%

14.1%

9.7% 4.7%

7.9%

6.7%

7.8%

4.1%

7.0%

9.1%

1.4%

4.3% 7.5%

17.6%

18.3%

15.3%

18.5% 11.5%

6.0%

3.3% 6.6%

7.4%

13.0%

1.6%

2.5%

2.1%

3.4%

4.2% VT 2.8% NH 6.5% MA 3.1% RI 0.4%

NJ 4.5% DE 14.6% MD 9.0% DC 5.2%

-0.6%

Change by % in Population; April 2000 to April 2010

Source: Cassidy Turley Research, US Census Bureau


As coastal and select southern markets continue to see population

growth and stronger levels of growth (both organically and through

in-migration), these markets will continue to be the focus of both

retailers and developers. As demonstrated through the most recent

census numbers, population growth continues to be much greater in

the Sun Belt and Western States and this trend was hardly impacted

by the Great Recession. While California’s growth rate may have

cooled slightly from 2000 to 2010, it still remained well above the

national average. Meanwhile, Texas, the Southwest, Mountain States

and the Southeastern U.S. were all on fire in the past decade.

Analysts at Citibank’s Retail Research Group recently published a

thought provoking paper in which they divided the country into six

basic regions and then looked at the number of locations within

those regions for an expanded list of some of the countries’ top retail

chains. They found that the Southeast U.S. now accounts for 25%

of the nation’s total population but 33% of current retail exposure

from the chains in their survey. The Midwest was the second largest

region in their survey in terms of total population—accounting for

21.4% of the nation’s consumers. But the Midwest accounted for

only 17.0% of the retail locations in their survey. The Southwest

was comparatively under-retailed in their findings—accounting

for 18.0% of the nation’s population but just 16.0% of total retail

exposure. The Northeast had relative parity with 17.7% of the

nation’s population and 18.0% of its retail exposure. Meanwhile,

the South Central region (which includes Texas) accounted for

11.6% of the total population and 11.0% of the retail presence of

surveyed companies. Lastly, the Northwest came in at 4.4% of the

total population and just 4.0% of total retailer exposure.

Population / Retailer Exposure

Retailer Exposure by Region, 2013

Northeast 17.7% 18.0%

Southeast 25.0% 33.0% South

Central 11.6% 11.0%

Midwest 21.4% 17.0%

Northwest 4.4% 4.0%

Southwest 18.0% 16.0%

Source: Cassidy Turley Research, US Census Bureau, Citi Research

Interestingly enough, much of what the Citi Retail Group found in

their analysis we see mirrored in the retailer growth requirements

that we track. Demand is picking up across the board, but the

coasts and Texas remain the hottest spots for site selection.

However, the Southwest, Northwest and Mountain states are all

also picking up significantly.

What Are Retailers Looking For?The typical profile now of a Class A shopping center project is one

located on a premium corner, in a densely populated urban location

with higher than average income demographics. With few exceptions,

this is the profile for a shopping center with sub-5% vacancy or better

and strong rental rate growth in nearly every major U.S. market. But,

the fundamentals become weaker for each of those variables that

you take away. That is because, at the street level, most retailers

are still cautious with their growth and are looking for the proverbial

“sure thing.” The best spaces in the best centers with the highest

traffic levels and/or exposure and the densest population and highest

income demographics. Of course, this is why recovery has been so

uneven in the retail world and bifurcated by class. But those spaces

have largely disappeared in most major marketplaces.

The market is still bifurcated on the basis of Class—though to a

lesser degree than it was either 12 or 24 months ago. But while

Class A properties are now generally doing well in all U.S. markets,

Class C properties are still struggling in nearly every national trade

area. Class B properties are the big swing properties here and while

these shopping centers were only doing well in the top 1/3rd of U.S.

metros two years ago (those with the healthiest local economies like

Washington DC, Boston, New York, Baltimore, San Diego, San Jose,

San Francisco, Seattle, etc.), they have since rebounded. Class B

product is now generally back to reasonable vacancy levels and

rental rate growth in at least the top 70% of major U.S. markets.

Trends to Watch in 2014: M&A ActivityThrough October of this year, we tracked roughly $27 billion in

retailer merger and acquisition activity in the United States. This is up

significantly over the $23 billion we tracked over the entirety of last year.

We anticipate that this trend will only accelerate heading into 2014.

There are a number of reasons for this, both in terms of consolidation

and growth driven mergers. Ultimately, we see the growth driven

deals outpacing those of retailers that are looking to merge for

survival’ sake, though there will be a fair amount of that as well.

Retail M&A Activity

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012 2013 YTD

Source: Cassidy Turley Research/Conference Board


Consolidation plays out further in the grocery world. Likewise, we

expect to see more moves like this year’s merger of Office Depot and

Office Max. The office supplies sector has been hit hard by online

competition. Staples had emerged as the clear leader in the sector,

primarily due to its strong omni-channel approach which saw declining

sales levels from bricks and mortar locations largely supplanted by

robust online sales, Serious questions as to the viability of both Office

Depot and OfficeMax were starting to be asked in a marketplace

where the perception was that there may only be room for two major

national bricks and mortar chains. While it is too soon to say whether

their merger will be a complete success, the two entities are infinitely

stronger together than they were as competitors. But while we expect

to see some M&A activity from concepts that are struggling, we think

there will be even more activity at the other end of the spectrum.

Private equity firms, hedge and pension funds and private investors

all remain on the lookout for new, strong concepts that they can

grow in an improving and expanding economy. Meanwhile, we also

continue to see investors looking to buy concepts on the cheap and

turnaround plays will likely be plenty. We also anticipate that activity

will be driven to some degree by segment leaders looking to pick up

market share by purchasing viable competing concepts. All of which

is likely to lead to more growth than contraction in the long run.

M&A Highlights Fall 2013Advance Auto Parts/Carquest Auto PartsAdvance Auto Parts purchased General Parts International, parent

of Carquest Auto Parts, for about $2 billion in October. The deal

would create one of the largest automotive parts providers in the

nation. Advance Auto Parts currently operates about 4,020 stores

nationally. The merger will boost those totals in the U.S. by about

1,250 company operated units (there are an additional 1,418

franchised U.S. Carquest units and 120 WorldPac locations—mostly

in Canada). After merger, the new company will have roughly 6,100

units and total sales estimated at $9.2 billion. This move will create

some redundancies and we anticipate that as many as 200 to 300

stores may be shuttered over the next few years as leases expire.

Allen EdmondsAllen Edmonds was acquired by private equity firm Brentwood Associates

in November for an undisclosed amount. The upscale men’s shoemaker

will continue to operate independently under the Allen Edmonds banner.

Allen Edmonds wholesales at numerous high end retailers nationally and

operates 45 company-owned retail outlets in the U.S.

Captain D’s Seafood Restaurants/Grandy’s Country Cookin’Private equity firm Centre Partners purchased Captain D’s Seafood

Restaurants from Sun Capital Partners in October for an undisclosed

amount. The deal included the 527-unit Nashville, Tennessee—

based chain as well as the 60-unit (franchise only) chain Grandy’s

Country Cookin’. Sun Capital had acquired the chain in 2010

and since helped to turn around sagging sales—it has posted 27

consecutive months of same store sales growth since. The chain has

about 290 company-owned units. Sun Capital still has an extensive

restaurant portfolio that includes Boston Market, Smokey Bones

Barbeque & Grill, Bar Louie Restaurants, Friendly’s Ice Cream,

Restaurants Unlimited, Garden Fresh, Fazoli’s, and Johnny Rockets.

Carl’s Jr. /Hardee’sRoark Capital announced its plans to a majority stake in CKE, the

parent company to fast food concepts Carl’s Jr. and Hardee’s in

November. The deal would likely not close until December at the very

earliest—more likely in early next year. Roark also owns Arby’s and

their other investments include McAlister’s Deli, Wingstop and the

Corner Bakery Café and Il Fornaio. They also recently acquired the

Miller’s Ale House Chain in July and are responsible for the various

concepts under the Focus Brands banner; Carvel, Cinnabon, Auntie

Anne’s, Schlotzky’s and Moe’s Southwest Grill. Details of the deal

have not been made available, but according to CKE’s most recent

quarterly filings, the chain operated 424 Carl’s Jr. and 468 Hardee’s

restaurants, with domestic and foreign franchisees accounting for an

additional 2,371 units worldwide.

Coffee Bean & Tea LeafThe Los Angeles, California-based Coffee Bean & Tea Leaf chain

was acquired in September by a group of private equity companies,

including Advent International, CDIB Capital, Mirae Asset Private Equity

and the Sassoon family, for an undisclosed amount. The chain operates

more than 900 company-owned and franchised stores across 15 states

and in over 30 countries. We anticipate accelerated growth ahead.

Johnny RocketsOn the restaurant front, one of the largest deals we tracked this

summer was the sale of Johnny Rockets to an affiliate of the private

equity group Sun Capital Partners. Johnny Rockets operates about

220 U.S. locations and a total of 300 restaurants globally with 60

units in the development pipeline and expected to open over the

next year. We anticipate that the new owners will likely boost growth

in the coming years.

Jos A. Banks/Men’s WearhouseJos. A. Banks ended its $2.3 billion bid to purchase Men’s

Wearhouse in mid-November but a potential merger reportedly has

the support of largest Men’s Wearhouse shareholder, Eminence

Capital. In the most recent twist, news broke as this report went

to press that Men’s Wearhouse had turned the tables on Jos. A

Banks, offering $1.5 billion for its rival.

“ Going forward, we expect even more M&A activity in 2014. Private equity firms, hedge and pension funds and private investors all remain on the lookout for new, strong concepts that they can grow in an improving and expanding economy. But the same holds true on the other end of the spectrum.”


Juicy CoutureLeonard Green and his Authentic Brands Group bought Juicy Couture

for $195 million in September from Fifth & Pacific Companies. Fifth

& Pacific is reportedly looking to focus on its fast growing Kate Spade

brand, while we anticipate a turnaround in store for Juicy Couture with

new management.

Lion’s ChoiceThe 23-unit Lion’s Choice restaurant chain was sold in September

for an undisclosed amount. The St. Louis, Missouri-based roast beef

concept was purchased by a private equity partnership that consists

of Black Rock Holdings and Millstone Capital Advisors. The new

ownership plans on adding as many as 15 additional restaurants in

the St. Louis area and growing throughout the Midwest.

Nationwide VisionNationwide Vision was purchased by Refac Holdings in September for

an undisclosed amount. Refac operates U.S. Vision, which operates

roughly 770 full service vision care stores throughout North America,

including locations within Belk, BJ’s, Boscov’s, Hudson Bay, JCPenney,

Macy’s, Meijer and Sears stores. Nationwide Vision operates about

65 retail locations, primarily in Arizona, and will continue to operate

under the same banner following the close of the sale. We anticipate

accelerated expansion for this concept in the future.

Neiman MarcusThe Canada Pension Plan Investment Board and Ares Management

(private equity) completed their purchase of Neiman Marcus in

October. The deal, valued at $6.0 billion, will see about half of that

amount repaying debt under the retailer’s existing credit facilities. The

new owners have a track record of aggressive growth with some of the

past retailers that they have invested in (99 Cents Only Stores, Smart

& Final and GNC). The deal included 41 Neiman Marcus stores, two

Bergdorf Goodman’s and 36 Last Call outlet locations. We anticipate

that much of the future growth may in the form of Last Call outlets,

though we would not be surprised to see a couple of new full-line,

high-end department stores as well over the next couple of years.

Office Depot/Office MaxOffice Depot and OfficeMax closed their $1.2 billion merger in early

November. The chain will kill the OfficeMax banner and go by Office

Depot—a change that it will begin to institute immediately. The new

chain now operates about 845 retail stores across the country, but

we anticipate that as many as one third or more of these may be

shuttered in the next few years as the retailer eliminates redundancies

and downsizes to smaller footprints as leases expire.

Pep BoysPep Buys acquired 17 Discount Tire Centers in Southern California in

September from AKH Company for an undisclosed amount. The deal

brings their national store count to more than 750 stores, with over

150 in the state of California alone.

Ritzman Pharmacies/Mast PharmacyThe already shallow pool of drug store players got even thinner

in October. Ritzman Pharmacies acquired the five-unit Mast

Pharmacy chain in northeastern Ohio for an undisclosed amount.

With the deal, Ritzman will now operate 25 pharmacies throughout

the Buckeye state.

SearsSears is reportedly considering spinning off its Land’s End apparel

business, as well as its automotive service centers. The move could

raise the struggling chain as much as $2.5 billion. In August, the

retailer had less than $700 million in cash on hand, with looming debt

maturities in 2014.

Walgreen’s/Kerr DrugWalgreen’s completed its acquisition of regional North Carolina

pharmacy chain Kerr Drug in November. Deal terms were not disclosed,

but the transaction included 76 drug stores, as well as a distribution

center. So far, no decision has been made on the rebranding of the

chain, though we think it likely in the next 24 months.

Wendy’sWendy’s has been active in refranchising locations. In November,

they announced the sale of 54 Salt Lake City area restaurants to NPC

International. The Dublin, Ohio-based chain also announced plans to

refranchise 38 company-operated units in the Phoenix marketplace

to a partnership consisting of their former V.P. of Operations, John

Peters and longtime Wendy’s franchisee Rick Holland. This follows

moves earlier this year to sell 24 company-owned restaurants

in the Seattle market to longtime franchisee Cedar Enterprises,

24 restaurants in the Kansas City area to NPC International, 30

restaurants in St. Louis to a group consisting of current Wendy’s

franchisee and NBA great Junior Bridgeman and current NBA

star Chauncey Billups and a total of 40 other restaurants in various

markets to eight other franchisees. The move is part of the chain’s

goal of refranchising 425 units this year in a move designed to free

cash flow, boost operating margins and provide steadier income

streams from higher royalty and rent payments.

Yankee CandleIn October, consumer products manufacturer Jarden closed on

its acquisition of the 560-store (U.S. and Canada) Yankee Candle

chain. Jarden paid a reported $1.75 billion in cash for the retailer

and reportedly plans for cautious growth ahead.

Trends to Watch in 2014: Grocery-Go-RoundIn terms of M&A activity, the grocery sector has been among

the most active and we don’t see that changing in 2014. Market

consolidation continued to take place here as traditional grocery

chains react to the continued expansion of new, smaller format

grocery players—many of which are non-unionized—into the

marketplace. We see growth from new concepts far outpacing


the amount of space that will be given back in the coming year.

Walmart’s plans for their small-format (30,000 square feet)

Neighborhood Market concept alone could potentially result in 4.5

million square feet of occupancy growth in 2014 (assuming they

live up to high-end projections for growth).

Over the past few years, the big three traditional players (Albertson’s,

Kroger and Safeway) have largely been in consolidation mode.

However, as demonstrated by the recent $2.6 billion acquisition

of southeastern grocery banner Harris Teeter by Kroger, these

players are now in acquisition mode. Safeway sold their Canadian

division in June for a reported $5.7 billion and now has a warchest.

Meanwhile, even privately held Albertson’s is now back in the

acquisitions game having recently purchased the 50-unit United

Supermarkets chain in Texas.

So why are the big three traditional grocery players making these

moves now? The reason is simple; all three have made moves to

free up capital and all three know that the key to competing against

all the new players in the marketplace is to build market share

and revenues. And all three know that growing their brands will

lead to better buying power and improve their ability to compete in

terms of pricing. And right now growth via acquisition is currently a

cheaper proposition than organic expansion.

There are plenty of smaller traditional chains that have struggled to

compete against the onslaught of new competition over the past few

years. The grocery business already has thin margins, but the impact

of the Great Recession on consumer behavior (“the new frugality”),

combined with encroachment of non-unionized players has made

for an extremely challenging environment to say the least. Certainly,

the bankruptcies of regional players like A&P and Bashas in recent

years demonstrate this trend. Against this backdrop, acquisition by

one of the larger traditional grocery chains could be a win-win for

many of these players. Kroger plans on keeping the Harris Teeter

brand alive, but the chain will now benefit from better buying power

thanks to improved scale and procurement proficiencies. Because

of this, we anticipate that M&A activity within the grocery sector will

only increase over the next year.

What will the net result be for the commercial real estate market?

Ultimately it will be one of strengthening tenancy. Though we

almost always see an uptick in store closures after such moves

(as new ownership seeks to cut dead weight from their portfolios),

these moves should generally result in the strengthening of those

chains that are acquired and translate into diminished chances of

bankruptcy or larger retail failures. Still, that being said, it is entirely

possible that we may see dozens (if not more) of underperforming

stores closed in the months following deals and some slight uptick

in vacancy levels in individual markets impacted by such moves.

Grocery Go Round Highlights Fall 2013Albertson’s/United SupermarketsAlbertson’s LLC also announced in September that it would be

purchasing Lubbock, Texas-based United Supermarkets. The chain

operates 50 supermarkets under three banners (United Supermarkets,

Market Street and Amigos), as well as seven convenience stores and

26 gas stations under the United Express banner.

Bi-Lo/Piggly WigglyBI-LO Holdings entered into an agreement in September to acquire

22 Piggly Wiggly stores in the southeast (16 in South Carolina and

six in Georgia) from Piggly Wiggly Carolina Company. The stores will

be rebranded under the BI-LO banner.

C&K MarketsIn late November, regional player C&K Markets filed for Chapter

11 bankruptcy protection. The chain, which operates about 60

stores in northern California and southern Oregon under the C&K

Market, Ray’s Food Place, Shop Smart, Price Less Foods and Lo

Buck$ banners was already in the process of selling off its fifteen

pharmacies to focus on its core business. C&K traditionally focused

on rural towns where they were the only grocery presence and

commented that the bankruptcy was a result of expanding outside

of that model, as well as the expansion of discounters into their

traditional strongholds. The chain will close at least 20 locations

but hopes to emerge from bankruptcy next year with at least 40

remaining stores that have “proven profitability.”

Food LionRepositioning is the name of the game with Food Lion, which has made significant investments in the roughly 170 stores that it operates throughout the Carolina’s. Food Lion, a division of Belgian conglomerate Delhaize, is planning on rolling out a new smaller footprint in the coming year with an increased focus on “Easy, Fresh and Affordable” as it seeks to compete more effectively with the flood of new, smaller concepts and organic players in the

marketplace.

Fresh & Easy/Wild Oats?Tesco announced plans in September to sell roughly 150 of the

200 Fresh & Easy stores that it operated in California, Arizona and

Nevada to Ron Burkle’s Yucaipa Companies. Yucaipa has yet to

officially announce its plans, but market speculation is that they

“ Don’t be surprised to see more M&A activity in 2014 between competing chains struggling to compete with increased competition from the Internet. Investors looking to buy concepts on the cheap and turn them around will be plenty. Meanwhile, we will also continue to see segment leaders looking to pick up market share by purchasing viable competing concepts.”


will use these properties to reboot the Wild Oats Markets banner.

Fresh & Easy declared bankruptcy shortly thereafter, in a move that

would allow it to get out of the 50 or so remaining leases that it did

not sell to Burkle’s group.

Fresh ThymeIn October, Fresh Thyme Farmers Market announced their plans to

open up to 50 new stores throughout the Midwest over the next six

years. The chain, created by former executives with both the Henry’s

and Sunflower chains, has major financial backing from Meijer. The

chain will operate in the 24,000 to 28,000 square foot range.

Giant EagleIn November, Giant Eagle converted its second store to their new

Market District concept. The location in Green, Ohio marks its

eighth addition to their new upscale concept, which is reportedly

producing impressive numbers. The chain has two other new

Market District locations planned in Northern Ohio, with new

growth for now likely to focus less on their traditional namesake

banner than on the new upscale one.

Harris Teeter/Piggly WigglyHarris Teeter, only a couple of weeks after itself agreeing to be

acquired by Kroger, also announced in September their plans to

purchase seven Piggly Wiggly Carolina stores (this included six

existing locations and one under construction—all in the Charleston,

South Carolina metro). Piggly Wiggly Carolina has stated that these

transactions will strengthen their balance sheet considerably and

that they have no current plans to sell any additional stores, nor is

the company at risk of bankruptcy.

Nash Finch/Spartan StoresMinneapolis-based Nash Finch and Byron Township, Michigan-

based Spartan Stores officially merged in November. The move was

approved with 98% or greater approval from shareholders of both

firms. The new entity will operate under the name SpartanNash

Company starting in May of next year. The new entity will operate

177 supermarkets in 44 states under the banners of Family Fare

Supermarkets, No Frills, Bag’n Save and Econofoods and will be the

largest food distributor serving military commissaries and exchanges

in the United States. The move is expected to result in the chain

achieving cost savings through greater buying power, the elimination

of redundancies and the strengthening of its supply chain. It is still

unknown if any existing stores will be closed following this move,

though some real estate repositioning prior to future growth is likely.

PublixPublix announced in October that it would be off-loading the

14-store PIX gas station/convenience store chain that it has

operated since 2001 to focus on its core grocery business. Circle

K Stores, a division of Alimentation Couche-Tard will buy 13 stores

(eleven in Florida and two in Georgia) while the remaining site in

Tennessee is being sold to the Kentucky-based Max Arnold & Sons.

Meanwhile, the chain is focusing on resuming organic growth of its

traditional grocery concept. Publix has plans to open eleven new

stores (mostly in the 50,000 square foot range) throughout the

Charlotte, North Carolina marketplace through the end of 2015.

SafewaySafeway announced plans in October to exit the Chicago market,

where it operates 72 Dominick’s stores. The chain recently closed

the sale of its Canadian division to Sobey’s for $5.8 billion. That

move should result in about $4 billion (after taxes and expenses)

landing into the Pleasanton, California-based chain’s coffers.

Safeway’s sale of Dominick’s is expected to raise between $400

and $500 million more. The chain plans on using those proceeds to

paying down $2 billion in debt and repurchasing stock. A deal had

not yet been announced as this report went to press, however, four

stores were confirmed as to be sold to New Albertson’s, Inc. (which

will operate them under the Osco-Jewel banner) and Roundy’s

expanding Mariano’s banner in Chicago (they recently opened their

12th Chicagoland location) continues to be rumored as a suitor,

though Kroger is likely a more realistic buyer. Such a move would

give the giant a significant presence overnight in a market where it

currently does not operate. However, Central Grocers and Walmart

have also been rumored to be in play. Safeway owns the real estate

for about twenty of these locations. Safeway has since been rumors

of hostile takeover plans from hedge fund firm Jana Partners, and

has adopted a poison pill defense to fend off any investors seeking

to obtain more than 10% of shares outstanding.

WalmartWalmart announced plans in September to build more than 200

new Walmart Neighborhood Market stores in the U.S. over the

next 18 months to bring their total store base to roughly 500 units.

Growth for the smaller concept grocery only stores, which measure

only 30,000 square feet compared to typical Walmart Supercenter

footprints that start at 125,000 square feet and go up, has yet to

reach the pace that was originally expected when Walmart first

began rolling out the concept in the immediate aftermath of the

recession. That being said, the company has recently refined its

business model to create more operating efficiencies and to bring

returns from the smaller format stores closer to those being realized

by the Supercenters. As Walmart continues to improve the logistics

model serving this new footprint, look for growth to explode. This

will be a game changer in the grocery world, however, had Walmart

been able to aggressively roll out this concept a couple of years

ago when the balance sheets of more traditional grocers were in

more perilous shape, they likely would have succeeded in knocking

out a number of smaller, regional chains. Walmart would like to

eventually reach as many as 700 units for this concept in the US.

In 2014, they will likely open between 120 and 150 Neighborhood

Markets and Walmart Express stores (this is their smallest concept

at just 15,000 square feet), compared to about 115 Supercenters.


Holiday Shopping Outlook 2013 As this report went to press there were a number of indicators that

were not yet available that will have a telling impact on what to

expect from this year’s holiday sales season.

Unfortunately, heading into the holiday season there were as many

reasons to be pessimistic as optimistic. The biggest problem is the

calendar; this year has six fewer shopping days than last year and

loses an entire weekend. That alone could make the difference

between a 3% and 4% seasonal gain in most seasons. Throw into

the mix the fact that consumer spending has been down slightly all

year and that consumer confidence had been rattled in September/

October by the government shutdown and you have plenty of

reasons for retailers to be nervous about receiving the proverbial

lump of coal in their stockings this Christmas.

Holiday Sales Performance 2002-2012

-5%

-3%

-1%

1%

3%

5%

7%

9%

21

22

23

24

25

26

27

28

29

30

31

Shopping Days % Holiday Sales Growth

Holiday Shopping Days vs. NRF Holiday Sales Growth

10-Year Average: 3.3%

Source: Cassidy Turley Research, National Retail Federation, Citi Research

In terms of the predictions from the major forecasting groups, most

anticipate sales growth this year to be below the averages of the

past few years but still at respectable levels. The National Retail

Federation forecast solid growth of 3.9% this year. The International

Council of Shopping Centers was not far behind at 3.7%. Wells

Fargo’s economists agreed with the ICSC at 3.7%, but we also saw

a number of much weaker predictions as well. Consumer tracking

gurus Shopper Trak predicted 2.4% sales growth while Customer

Growth Partners were slightly more optimistic at 3.9%. Morgan

Stanley forecast a bleak 1.6% total. Our forecast is for 3.0% to 3.5%

sales growth, though we hope we are erring on the side of caution.

We believe that a strong rebound in November’s consumer

confidence tallies and a solid Black Friday weekend will be the key

to determining whether sales growth ends up falling into the low or

high 3% range, though we also think totals outside of that range (on

either side) are unlikely.

Some positives we anticipate this year are lower gas prices, the

impact of the Holiday Creep (the start of the holiday sales period

continues to come sooner with Black Thursday now the true

beginning of the season) the likelihood of better weather and the

impact of the Sony/Playstation console wars on potentially driving

up sales. But we also expect those positives will be countered by the

impact of showrooming and online shopping, fewer shopping days,

the absence of any “must have” gifts in the children’s sector, the

likelihood of less self-gifting this year (numerous consumer studies

have pointed towards this phenomenon), lower retailer inventory

levels and continued declines in mall foot traffic erasing most of those

positives. The biggest issue, however, remains consumer sentiment

and continued caution at the macro level—shopper spending power

has been feeling the pinch all year and this will likely play out this

holiday sales season as lukewarm annual sales growth totals. Still, it is

important to keep in mind that the ten-year average for sales growth

according to the National Retail Federation has been 3.3%. Certainly

everyone in the industry would like to see totals in the 4.0% range or

better. And there is no doubt that should actual performance come

in at 3.3% this year that many in the media will run with the storyline

of this year’s disappointing holiday sales season. But, a 3.3% gain—

while not as strong as what was hoped for—would, in fact, represent

totals in line with the historical average.


National OverviewAs of the close of Q3 2013, shopping center vacancy across the 60

major markets that we track in the United States stood at 8.7%. This

compares to a vacancy rate of 8.8% at the midyear point of 2013 and

a vacancy rate of 9.6% one year ago. This is the lowest level of vacancy

that the market has recorded since the Great Recession—retail

shopping center vacancy in the United States peaked at 10.8% in Q2

2009. But while we are entering into the fourth year of consecutive

occupancy gains, recovery in the overall retail sector has lagged

behind that of most other commercial real estate property types.

The centers that we track accounted for over 42.2 million square feet

of occupancy growth over the past twelve months. Deliveries are also at

their highest level since the Great Recession. We have tracked nearly

18 million square feet of new shopping center product that has come

online over the past year. For the most part, these numbers have directly

translated into growth. As little new construction is taking place on a

speculative basis (and virtually no anchor or box space is being built

at all without commitments in place before construction), we estimate

that roughly 85% of that total—or about 15.3 million square feet--

consisted of space that was accounted for immediately upon delivery.

Meanwhile, second generation space saw its occupancy levels increase

by approximately 26.9 million square feet during the same period.

U.S. Shopping Center Statistics

Pacific 935,617,213 65,870,018 7.0%

7,171,157 2,735,839

3,430,094

Mountain 481,232,546 48,245,654 10.0%

7,226,206 2,225,325

1,923,450

Great Plains

293,561,866

27,815,954 9.5%

1,845,339

893,342

509,967

Great Lakes 726,221,168 79,558,885 11.0% 5,603,014 2,125,878 377,120

Texas South Central

671,216,332

60,016,840

8.9%

6,992,374

2,925,033

931,877

Southern US 193,742,090 22,882,282 11.8% 1,232,022 274,663 7,700

Southeast 1,186,563,516 104,272,110 8.8%

7,787,178 4,728,968

4,664,727

Northeast 777,640,354 49,782,019 6.4%

4,422,923 2,057,594

2,540,313

National 5,265,795,085

458,443,762

8.7%

42,280,213

17,966,642

14,385,248

Region Total Gross Leasable

Area

Total Vacant SF

Vacancy %

Last 12 Months Under Const. Net

Absorption Deliveries

Source: Cassidy Turley Research/Costar

Neighborhoods On the ReboundOf course, not all shopping center types have performed the same.

The biggest gains over the past year have come from community,

neighborhood and strip centers. Vacancy for this product type now

stands at 10.1%. This product type was hardest hit during the recession.

Many markets entered the downturn with a glut of unanchored strip

product to begin with and this particular subtype of shopping center

is most dependent upon mom-and-pop retailers—who largely went

missing in action during the recession and who are only now slowly

starting to drive modest levels of demand in the nation’s strongest

trade areas. Yet, the community/neighborhood/strip sector has seen

occupancy levels increase by over 27.8 million square feet in the past

year. Deliveries accounted for nearly 10.4 million square feet of new

product over the last twelve months and about 8.8 million square

feet of this space was occupied upon delivery. Meanwhile, second-

generation space accounted for the remaining 19 million square feet

of occupancy gains that we tracked over the past four quarters.

Community / Neighborhood / Strip Center Statistics

Pacific 637,576,599 52,082,014 8.2% 4,069,478 1,764,279 2,238,167

Mountain 323,619,598 37,813,038 11.7% 4,629,078 769,723 158,006

Great Plains 189,778,773 19,340,926 10.2% 1,512,079 234,180 58,528

Great Lakes 474,378,875 60,279,406 12.7% 3,993,432 1,517,181 318,825

Texas South Central 468,709,951

49,167,976

10.5%

4,998,628

2,143,312

393,746

Southern US 134,853,488 15,591,382 11.6% 1,093,908 138,663 2,400

Southeast 812,083,857 84,787,610 10.4% 4,479,826 2,400,019 2,573,235

Northeast 484,516,124 38,151,698 7.9% 3,058,895 1,398,701 1,067,813

National 3,525,517,265 357,214,050 10.1% 27,835,324 10,366,058 6,810,720


Area

Total Vacant SF

Vacancy %




Part of the resurgence of this property type has been the fact that food

and service related retailers are driving demand currently. While there is

some consolidation occurring in the grocery world, new smaller format

concepts are more than making up for those losses and neighborhood

centers are overwhelmingly where they land. The traditional tenant

mix of the neighborhood and community centers have always been

grocery or drug anchors, with a mix of restaurants and local services

and generally fewer hard goods or big box retailers—which is where

much of the contraction in the industry is still taking place. This will

only strengthen in the coming year as demand trends will continue to

shift towards retailers that don’t compete with the Internet. Meanwhile,

the return of new home development in the United States will mean

more development—most of it in the form of new neighborhood or

strip centers—as retailers return to following rooftops.

Top Malls Continue to StrengthenDespite the fact that many traditional mall tenants are not currently

in growth mode, malls continue to enjoy the lowest vacancy levels

of any shopping center product type. We are currently tracking a

national vacancy rate of just 4.8%. This is down from Q2’s reading

of 4.9% and reflects a reduction from 5.8% one year ago. Malls

have accounted for just under 1.8 million square feet of net

absorption over the past year, while deliveries have added just under

900,000 square feet of new space to the marketplace.

Shopping Center Outlook 2014


Mall properties still account for the lion’s share of the nation’s retail

trophy assets and continue to benefit from a marketplace in which

Class A space is seeing the highest levels of tenant interest and

activity. However, these numbers don’t tell the whole story. Most of

the major markets that we track have reported the same trend across

the board; Class A space availability is extremely tight and Class B

malls are faring well in all but the weakest economies. However, Class

B space still faces some challenges in some marketplaces and Class

C mall properties in virtually every trade area (including those with

the strongest local economies) are where the overwhelming majority

of vacancy resides today. Our estimate is that vacancy for Class C

malls throughout the United States is closer to the 8% range, while

Class A vacancy is now just below the 2% mark.

Returns by Property Type

Multifamily Hotel Industrial Office Retail0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1-Year Returns 10-Year Returns

Source: Cassidy Turley Research, NCREIF

Perhaps a more telling statistic on mall performance comes not from

the leasing side of the equation, but from the investment world. The

National Council of Real Estate Investment Fiduciaries (NCREIF)

recently released a report that showed that retail properties have

performed better than any other commercial real estate property

type in terms of return on investment. They reported at the close of

Q3 that (on an unleveraged basis) retail properties had averaged a

13.2% rate of return over the previous year and had yielded an

average of 10.5% over the past decade.

U.S. Mall Statistics

Pacific 113,370,244 2,905,056 2.6%

724,221 345,838

154,408

Mountain 57,015,445 2,883,647 5.1%

321,096 38,331

1,514,000

Great Plains 41,593,229 2,575,383 6.2%

134,006 56,410

29,789

Great Lakes 95,688,878 7,583,729 7.9%

(77,801) 6,500

-

Texas South Central

75,423,970

3,565,354

4.7%

324,805

6,200

-

Southern US 18,957,974 2,886,430 15.2%

(226,842) -

-

Southeast 148,052,408 6,097,252 4.1%

343,397 194,987

-

Northeast 117,021,531 3,312,614 2.8%

242,214 227,260

747,500

667,123,679

31,809,465

4.8%

1,785,096

875,526

2,445,697


Area

Total Vacant SF

Vacancy %



National


However, it is critical to note that NCREIF only tracks institutional

grade properties—in other words, the cream of the crop. So these

numbers are almost entirely driven by core trophy assets—mostly

malls. Unfortunately, once you step outside the realm of Class A

and Class B+ assets in most markets is where you begin to see the

challenges facing the retail landscape. Retailer demand remains all

about Class A and, in some markets, Class B space. Beyond that is

where most of the nation’s retail shopping center vacancy remains.

It is where rental rate growth has largely remained flat or is still

actually posting modest declines in some of the countries’ weakest

marketplaces. It is where nearly all of the weaknesses for the entire

sector are concentrated.

Specialty Centers; All About the OutletsNational specialty center vacancy as of the end of Q3 2013 stood

at 7.6%. This product classification also includes lifestyle centers,

outlet centers and theme retail projects. Vacancy has remained in

essentially the same place for the past six months. One year ago, it

stood at 8.0%. Over the past year, we have tracked just under 4.8

million square feet of occupancy growth for this property type as

roughly 4.5 million square feet of new product (nearly all of it in the

form of outlet centers) was delivered to the marketplace.

Specialty Center Statistics

Pacific 33,988,970 2,578,496 7.6% 558,964 567,795 922,422

Mountain 13,404,050 1,094,960 8.2% 1,050,051 1,083,867 245,585

Great Plains 10,170,540 1,302,454 12.8% 405,028 588,183 421,650

Great Lakes 22,144,834 1,189,997 5.4% 131,379 4,500 3,895

Texas South Central

20,783,225

1,409,055

6.8%

682,444

397,345

-

Southern US 6,360,546 1,170,785 18.4% (160,986) - -

Southeast 41,593,928 2,918,281 7.0%

1,472,487 1,456,387

1,243,081

Northeast 19,802,872 1,098,340 5.5%

632,264 409,000

330,000

National 168,248,965

12,762,368

7.6%

4,771,631

4,507,077

3,166,633


Area

Total Vacant SF

Vacancy %




Higher end lifestyle centers continue to do well and hold their

own competing against Class A mall projects. However, there is

no question that this product type was overbuilt in some trade

areas. For years there has been a running joke in development

circles that if you aren’t sure how to position your new project, just

throw in a fountain and you can call it a lifestyle center. And this

may illustrate one of the challenges that this product type faces.

The highest end product accounts for some of the nation’s best

performing trophy centers, but this sector of the marketplace was

overbuilt heading into the downturn. As a result, some weaker

projects have taken a lot longer to rebound. Thanks to the growing

impact of e-commerce, many of the apparel and hard goods

retailers who traditionally make up the tenant mix for lifestyle

centers have slowed or reversed growth. Most absorption for this

product type now is coming from dining or food related concepts


(higher end grocers like Whole Foods are increasingly part of the

standard tenant mixes at these centers). But if performance for

lifestyle centers has been a mixed bag, demand remains white-hot

for outlet center space. This is one of the few product types where

we have seen developers build speculatively. In general, most of

these projects lease-up before construction is done. Discount and

outlet concepts are one of the few areas where we are seeing a lot

of apparel players who are otherwise in no or slow growth mode

looking to grow. For example, while Nordstrom will likely build no

more than one full service department store over the next year, they

are looking to expand their off-price Nordstrom Rack concept by

as many as 60 stores over the next two years. Likewise, the recent

acquisition of Nieman Marcus will probably result in increased

expansion—not necessarily for the chain’s namesake concept but

for its off-price Last Call stores.

Adaptation Keeping the Power in Power CentersIf you look at it from a demand perspective, it would appear that

power centers would be the product type in greatest peril. Power

centers are all about big box retail, but nearly every single category

big box user type is shrinking. This includes categories that are

in sharp consolidation mode due to competition with the Internet

(bookstores, consumer electronics, office supplies, etc.). Most of

these chains are not only closing stores but also slashing footprints.

But it also includes some strong categories like pet supplies—where

most chains are generally in modest growth mode—but more are

experimenting with smaller concepts of 10,000 square feet or less.

The fact is that retailers are shrinking their box presence overall,

whether we are talking about grocery stores, home improvement or

just about any other category. This is the twilight of the big box age.

Power Center Statistics

Source:

Pacific

150,681,400

8,304,452 5.5%

1,818,494 115,097

Mountain

87,193,453

6,454,009 7.4%

1,225,981

333,404

5,859

Great Plains

52,019,324

4,597,191 8.8%

(205,774)

14,569 -

Great Lakes

134,008,581

10,505,753 7.8%

1,556,004

597,697

54,400

Texas South

Central

106,299,186

5,874,455 5.5%

986,497

378,176

538,131

Southern US

33,570,082

3,233,685 9.6%

525,942

136,000

5,300

Southeast

184,833,323

10,468,967 5.7%

1,491,468

677,575

848,411

Northeast

156,299,827

7,219,367 4.6%

489,550

22,633

395,000

National

904,905,176

56,657,879 6.3%

7,888,162 2,217,981

1,962,198


Area

Total Vacant SF

Vacancy %




The only exception to the rule would be sporting goods—which

remains robustly in growth mode both in terms of units and

footprints—due largely to a mix of successful experiential retail and

limited competition from online sales (particularly when it comes to

firearms). One could also argue that health clubs fit in here as well.

Larger concepts have backfilled a substantial amount of vacant

mid-size boxes (and larger), though due to the cost of converting

space for this use, there is an equally strong argument that this is

more about adaptive re-use.

Regardless, against this backdrop, one would assume that power

centers were taking it on the chin. But they are holding up well.

And this isn’t just because the best operators have taken creative

approaches to leasing and have been willing to invest in expensive

demising and upgrades of their space (which they have). But it is

also because the very nature of power center space has changed.

Call them power neighborhood centers or regional neighborhood

centers or whatever you like. The fact is that the old paradigm of

just throwing up some boxes, leasing to a few regional players and

hoping for a strong 10-mile trade area is dead. The new paradigm

for power centers is about straddling both the power and community/

neighborhood center worlds.

Despite this, the power centers that we track are reporting vacancy

(as of Q3 2013) of just 6.3%. This is down from a reading of 6.4% in

Q2 and 7.0% a year ago. We’ve tracked just under 7.9 million square

feet of occupancy growth for this product type over the past twelve

months. During that same time, developers added nearly 900,000

square feet of new product to the marketplace.

The question, of course, is with big box demand shrinking (both in

terms of retailer demand for locations and actual footprint), why are

power centers continuing to perform so well? Adaptation is the answer.

While there remain disparities in performance within this sector that

are nearly all based on class, there are a few common threads that

we have seen with the best performing power centers. The first is that

these landlords were not afraid to spend money to demise larger, vacant

boxes a few years back when big box vacancy became a major issue.

Those who made the investment were able to chop up larger space

and land new, more nimble junior box users. The second major trend

has to do with embracing food users, particularly grocery tenants. The

addition of grocery components makes perfect sense—small format

grocery players have proven to be excellent tenants for power centers

looking to backfill vacant Circuit City locations. But this play isn’t just

about getting empty space filled—it is about repositioning. The idea

is simple; power centers used to be all about big box retailers with

regional draws. Add some grocery components and now you have

hedged your bets with both regional and local draws.

The new power center is really a hybrid neighborhood center.

Nearly all of the new development that we are tracking for this

product type includes significant commitments in place from food

anchors, as opposed to the old host of big box users. Target and

Walmart Superstores, in particular, have proven to be extremely

attractive tenants to land. Both offer strong neighborhood and

regional draws in terms of shoppers, but they both also prove to be

attractive anchors for inline tenants to follow.


Construction Returning to MarketplaceFrom 2002 to 2008 developers added nearly 140 million square feet

of new shopping center space to the marketplace. Those numbers

dropped precipitously during the Great Recession. From 2009 to

2012 we tracked just 23.2 million square feet of new product that

was delivered. Mostly this was in the form of additional pad buildings

at existing shopping centers, though outlet centers saw strong growth

and there were a couple of regional malls—long in the works from

before the downturn—that were delivered as well. Yet, in the past year,

we have tracked nearly 18 million square feet of new shopping space

that was delivered to the marketplace. The development pipeline, so

far, has overwhelmingly been about infill urban projects (whether new

or redevelopment). But with the return of the nation’s housing market

and new home construction expected to pick up significantly in 2014,

we anticipate that new construction levels will pick up further next year.

Of the roughly 18 million square feet of new product delivered over

the past year, nearly 60% of that has been at existing centers where

expansions or redevelopment took place. In terms of product types,

community/neighborhood/strip centers accounted for the lion’s share

of activity. We tracked just under 10.4 million square feet of product

that has been delivered over the past year, accounting for just under

30% of all new construction. Specialty centers accounted for just over

4.5 million square feet of new product—nearly all of which was in the

form of outlet centers—which remain white hot. Malls accounted for

just under 2.5 million square feet of new space, while the nation’s

power center inventory grew by just under two million square feet.

U.S. Shopping Center Development

24.1

19.5

17.7

14.2

20.7

25.5

20.9

18.4 19.3

8.6

3.2 5.1

3.4

14.0

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD

Mill

ions

, SF

Shopping Center Deliveries MSF 2002 – 2008

MSF 2009 – 2012

M SF Last 12 Months


We are now tracking 14.4 million square feet of new shopping space

under construction in the United States. This is the largest amount of

new space in the development pipeline that we have tracked since

early 2009 when the pipeline was still emptying following the onset

of the recession in September 2008. Once again, the community/

neighborhood/strip category leads the pack with over 6.8 million

square feet of space under development. Specialty centers follow

with nearly 3.2 million square feet of product under construction,

while malls account for just over 2.4 million square feet of planned

deliveries. Lastly, we are tracking just under two million square feet of

new power center development. These projects have varying delivery

timelines over the next six quarters. The Southeast U.S. leads the way

with just under 4.7 million square feet of space under development.

The Pacific region follows with 3.4 million square feet. There is just over

2.5 million square feet of new development underway throughout the

Northeast, while the Mountain region has roughly 1.9 million square

feet of new projects in the works. The Great Lakes, Great Plains, Texas

and South U.S. regions all have less than one million square feet of

active construction projects in their respective pipelines.

Proposed projects are up as well. The Directory of Major Malls is now

tracking 36 major projects in the planning stages throughout the U.S.

that are one million square feet in size or greater. The majority of

these are mall or lifestyle center projects and a substantial number

of them are mixed-use in nature. But despite, the uptick in new

development activity, we have yet to see many developers willing to

build speculatively and we don’t expect that to change anytime soon.

This certainly won’t be the case in terms of anchor tenancy anytime

within the next few years—if not throughout the entire foreseeable

future. The building pattern for the next decade is likely to be based

upon secure commitments in place to anchors, minimal speculative

building on inline space and delivery in phases. Retail fundamentals

may be improving, and the construction pipeline growing, but don’t

expect much in the way of risk taking any time soon.

Class Acts Rule the RoostOverall retail vacancy has been on a downward trajectory going on

four years now, but declines in vacancy have been relatively slow

with changes measured more in basis than percentage points. Of

course, recovery has been uneven both geographically and across

product types. But across every market that we track and across

every shopping center type we have also seen sharp divisions in

performance on the basis of class.

In virtually every market that we track, we found that retailer demand

for Class A space was extremely robust and this held true in even

the most challenged local economies. Of course, this is nothing

new. Recovery started with Class A—even with a diminished pool of

actively growing tenants this is where retailers look first for growth.

Retailer demand has been on the upswing for four years now and

though this demand has only increased incrementally each year,

in a marketplace where there has been little in the way of new

construction Class A options are now few and far between in most

markets. Demand for quality space has now spilled over to Class B

product in most major U.S. markets with vacancy for these shopping

centers falling and rents finally starting to show some signs of growth

(rents have been on the upswing for Class A product in most trade

areas for well over two years now). But this trend has yet to spread to

many secondary and tertiary markets—particularly in portions of the

Midwest and South. It also hasn’t, and likely won’t, spread to Class C

product—which will continue to remain challenged even in some of

the nation’s tightest vacancy marketplaces.


The overwhelming majority of shopping center vacancy that exists

today throughout the United States is in Class B or C product. Even in

the most economically challenged markets where the overall metrics

indicate flat overall asking rents, Class A rents are climbing by as

much as 5% or more annually. In mid-performing markets we have

seen Class A rents climb by as much as 10% and we have seen

increases of more than that in some of the hottest trade areas. Until

enough new product is delivered to the marketplace to sate demand,

expect this trend to continue.

The shortage of Class A space is now starting to discourage growth in

some trade areas. For example, we know of a number of retailers who

have slowed or postponed planned expansion in the San Francisco

Bay Area as they patiently wait for quality space to become available.

We have heard similar anecdotal information from multiple markets

on both coasts (demand remains white hot in Texas, however,

because developers never fully stopped building here during the

recession space options remains plentiful). This has proven beneficial

to many trade areas that came late to the recovery but that are

blossoming now—particularly for a number of cities in the Mountain

region. Phoenix and Las Vegas were hammered by the recession but

have seen retail demand and activity radically improve in the past 18

months. Denver is white-hot in terms of demand while Salt Lake City

is also seeing strong activity.

In recent years, our review of top producing trade areas (in terms of

retailer demand and occupancy growth) have consistently included

metros like Washington DC, New York, San Francisco, San Jose,

Boston, Houston, Dallas and San Diego. But thanks to economic

recovery picking up in a number of major secondary markets and the

fact that retailers are now finding little room to grow in many of these

markets, we have seen a number of upstart trade areas surpassing

these cities in terms of actual occupancy growth.

Looking AheadRetailer demand next year will still be primarily about the economy or

the Internet. Discounters and luxury players will be active but just as

the middle class consumer will still largely be in frugality mode, mid-

priced hard goods players will largely be inactive in terms of bricks

and mortar growth. Meanwhile, food related users (restaurants and

grocery) and service users will remain extremely active.

“ The overwhelming majority of shopping center vacancy that exists today throughout the United States is in Class B or C product. Even in the most economically challenged markets where the overall metrics indicate flat overall asking rents, Class A rents are climbing by as much as 5% or more annually. In mid-performing markets we have seen Class A rents climb by as much as 10% and we have seen increases of more than that in some of the hottest trade areas. Until enough new product is delivered to the marketplace to sate demand, expect this trend to continue.”

Directory of Major Malls – Top U.S. 20 Proposed Shopping Centers

Project Location Shopping Center Type Mixed Use? Gross Leasable Area Anchors Developer

Mall at Luxury Point Sayreville, NJ Lifestyle Specialty Yes 2,600,000 Bass Pro Shops O'Neill Properties Group

Copper Ridge at Northgate Colorado Springs, CO Lifestyle Specialty Yes 2,000,000 Bass Pro Shops Northgate Properties

Berry Farms Franklin, TN Lifestyle Specialty No 1,800,000 Boyle Investment Company

Okatie Crossing Bluffton, SC Lifestyle Specialty No 1,600,000 Horne Properties

The Shops at East Prairie Ames, IA Lifestyle Specialty No 1,500,000 Wolford Development

Konterra Town Center East Laurel, MD Lifestyle Specialty Yes 1,500,000 Konterra Realty

Parkside Town Commons Raleigh-Cary, NC Lifestyle Specialty Yes 1,500,000 Target, O2 Fitness, Frank Theatres

Kite Realty Group

The Falls Bristol, VA Lifestyle Specialty No 1,500,000 Cabela’s Interstate Realty Advisors

Columbia Crossing Columbia, IL Lifestyle Specialty Yes 1,500,000 G.J. Grewe

Seaport Square Boston, MA Lifestyle Specialty No 1,500,000 WS Development

The Shops at Summerlin Centre

Las Vegas, NV Super Regional Center Yes 1,500,000 Dillard’s, Macy’s Howard Hughes

Waller Town Center Waller, TX Lifestyle Specialty No 1,400,000 Cullinan Properties

Ka Makana Ali'i Kapolei, HI Lifestyle Specialty No 1,400,000 DeBartolo Development

The Commons at 7th Standard

Bakersfield, CA Super Regional Center Yes 1,385,000 Bidart Bros.

The Railyards Sacramento, CA Lifestyle Specialty No 1,300,000 Inland American Retail Mgmt.

Estrella Falls Mall Goodyear, AZ Super Regional Center Yes 1,300,000 Macerich

The Triangle Murrieta, CA Lifestyle Specialty No 1,300,000 Domenigoni Barton Properties

The Pinnacle Bristol, TN Super Regional Center Yes 1,300,000 Bass Pro Shops, Belk, Regal Cinemas

Johnson Commercial Development

Delta Shores Sacramento, CA Lifestyle Specialty No 1,300,000 Merlone Geier

The Bridges at Mint Hill Mint Hill, NC Lifestyle Specialty No 1,500,000 Belk Howard Hughes


Though there will be closures and consolidations among a number of

major chains, large scale bankruptcies will be fewer overall than what

we saw this year or last. Space givebacks will be down slightly while

demand will be up slightly. Neighborhood centers will see the greatest

level of improvement; malls the least—but a rising tide will lift all boats.

“ …the most important economic trend impacting mom-and-pop demand is the return of housing appreciation. Home equity lines of credit are the initial line of funding for most (an estimated 75%) of these start-ups. Though the numbers will be tepid to begin with, we will see small business creation gradually accelerating over the next 24 months.”

The return of the housing market will remain the single greatest

overriding economic story and the one with the most significance for

retail. Rising home values will continue, though not at the whiplash pace

of the past 18 months. Instead, we will begin to see housing values in

most markets falling into more sustainable levels of growth. New home

construction will ramp up; this will help to drive lower unemployment,

greater wage growth and improved consumer spending. The real

impact might not be clearly felt until 2015, but it will be felt.

Shopping Centers (All Types)

Vacancy Rate 3Q 2013



1. San Francisco, CA (Includes SF Peninsula)

3.0% 3.0% 3.0%

2. Hawaii 3.4% 3.5% 3.6%

3. Pittsburgh, PA 4.8% 4.7% 5.5%

4. New York Metro (NYC, Long Island, Southern CT)

4.9% 4.9% 5.1%

5. San Jose, CA 5.3% 5.4% 5.7%

6. Boston, MA 5.5% 5.2% 5.3%

7. Salt Lake City, UT 5.5% 5.3% 5.9%

8. San Diego, CA 5.6% 5.2% 5.8%

9. Oakland/East Bay, CA 5.6% 5.8% 5.8%

10. Orange County, CA 5.6% 5.8% 5.8%

11. Washington DC 5.7% 5.7% 5.6%

12. Los Angeles, CA 5.9% 5.7% 6.0%

13. Santa Barbara, CA 6.2% 6.1% 6.2%

14. Des Moines, IA 6.6% 6.5% 7.1%

15. Baltimore, MD 6.7% 6.5% 7.2%

16. Austin, TX 6.7% 6.6% 7.0%

17. Northern New Jersey 6.8% 6.7% 7.2%

18. Minneapolis/St. Paul, MN 7.0% 7.0% 7.6%

19. Miami, FL 7.0% 6.9% 7.1%

20. Seattle, WA 7.2% 7.0% 7.6%

21. Raleigh/Durham, NC 7.3% 7.2% 7.0%

22. Charleston, SC 7.3% 6.9% 6.9%

23. Denver, CO 7.7% 7.6% 8.3%

24. New Orleans, LA 7.8% 7.6% 8.8%

25. Portland, OR 7.9% 7.7% 8.1%


Most importantly, the return of increasing home values will translate

into stronger consumer spending, less frugality among middle-class

shopper and a resurgence of small business creation. In terms of

retailer demand, mom-and-pop retail has been the missing link.

These are the bread-and-butter tenant type for neighborhood

and strip retail centers, but they also certainly help to increase

the pool of demand for all retail space. While we have only just

begun to see some signs of life from this sector (after nearly six

years), the action has largely been limited so far to the nation’s

strongest local economies. That is because that is where we see the

greatest strength in home values. This is why the most important

economic trend impacting mom-and-pop demand is the return of

housing appreciation. Home equity lines of credit are the initial line

of funding for most (an estimated 75%) of these start-ups. Though

the numbers will be tepid to begin with, we will see small business

creation gradually accelerating over the next 24 months.

San Francisco

3.0%Hawaii

3.4%Pittsburgh

4.8%

Lowest Vacancy Markets

Look for continued incremental declines in overall shopping center

vacancy heading into 2014. We anticipate that overall vacancy will

fall to near the 7.9% mark by the close of next year, despite the fact that

new construction will pick up considerably and 2014 will see many of the

issues surrounding the shortage of Class A space alleviated.


While there have been a few dynamics that have changed since

our last report, there have been a number of trends that haven’t.

Bifurcation by class is one of them. Slow growth is another. The good

news here is that of 60 total markets that we track, only 17 posted

increased vacancy levels over the past year. Of those, five still have

vacancy rates of 8.0% or less and some of these trade areas are

markets where some of the most robust growth in recent years has

taken place. Vacancy in Boston now stands at 5.5% (up from last

year’s reading of 5.3%), but despite this uptick this remains one

of the hottest retail markets in the nation. The same holds true of

Washington DC where vacancy has climbed from 5.6% to 5.7% over

the past year. Philadelphia vacancy has ticked up from 7.7% to 8.0%.

In each of these three cases, retailer demand and leasing activity has

remained strong but have been outpaced by the resurgence in new

development that is taking place in these trade areas.

Highest Vacancy Markets

Reno

14.9%Memphis

13.9%Birmingham

13.7%In terms of overall vacancy, the San Francisco shopping center

market led the way with just 3.0% vacancy—though it is important to

remember that the majority of this city’s inventory is in the form of

freestanding retail or street-level retail in mixed-use buildings—

segments of the marketplace that these numbers do not cover. Other

major markets in the top ten include; Hawaii (3.4%), Pittsburgh

(4.8%), New York City Metro (4.9%), San Jose (5.3%), Boston

(5.5%), Salt Lake City (5.5%), San Diego (5.6%), Oakland/East Bay

(5.6%) and Orange County CA (5.6%).

Keep in mind, that these are the top U.S. markets in terms of vacancy

levels—not necessarily occupancy growth, though nearly all of these

have posted strong positive net absorption trends in the past year. Nor

do these numbers measure demand. For example, demand levels

remain white hot in Houston, Dallas and are very strong in a number

of other Texas markets, yet no Lone Star State metros made our top

ten. This is because throughout the recession, the Texas economy

was the best performing in the United States and was one of the few

places where retail development has continued to take place. While

Texas markets have continued to post among the best occupancy

growth numbers and highest levels of demand of any in the United

States, many have also experienced considerable levels of new

development. And so while activity and demand are both strong in

most major metros there, vacancy levels are also generally elevated.

Shopping Centers (All Types)




26. Philadelphia, PA 8.0% 7.7% 7.7%

27. Little Rock, AK 8.1% 7.2% 6.7%

28. San Antonio, TX 8.1% 7.7% 9.0%

29. Richmond, VA 8.4% 8.4% 8.9%

30. Houston, TX 8.5% 8.4% 8.8%

31. Tulsa, OK 8.6% 8.3% 8.6%

32. Hampton Roads, VA 8.7% 8.4% 7.9%

33. Tucson, AZ 9.3% 9.1% 10.1%

34. Louisville, KY 9.6% 9.3% 9.1%

35. Chicago, IL 9.6% 9.5% 9.8%

36. Orlando, FL 9.6% 9.7% 9.8%

37. Tampa, FL 9.7% 9.4% 9.2%

38. Indianapolis, IN 10.0% 9.7% 10.1%

39. Albuquerque, NM 10.0% 9.7% 10.1%

40. Dallas, TX 10.2% 10.0% 10.6%

41. Milwaukee/Madison, WI 10.3% 9.9% 10.7%

42. Mobile, AL 10.3% 8.6% 7.9%

43. Kansas City, MO 10.5% 10.1% 10.4%

44. Charlotte, NC 10.5% 10.1% 10.2%

45. Oklahoma City, OK 10.6% 10.3% 11.0%

46. Inland Empire, CA 10.6% 10.3% 10.5%

47. Nashville, TN 10.6% 10.7% 11.6%

48. Jacksonville, FL 10.8% 10.3% 11.1%

49. St. Louis, MO 10.9% 10.9% 11.1%

50. Sacramento, CA 10.9% 10.9% 11.5%

51. Omaha, NE 11.7% 10.6% 9.5%

52. Las Vegas, NV 11.8% 11.1% 12.2%

53. Cincinnati/Dayton, OH 11.9% 11.8% 12.3%

54. Phoenix, AZ 12.2% 12.1% 13.6%

55. Detroit, MI 12.2% 11.6% 12.0%

56. Atlanta, GA 12.2% 12.1% 12.6%

57. Cleveland, OH 12.6% 12.1% 12.2%

58. Birmingham, AL 13.7% 13.4% 13.6%

59. Memphis, TN 13.9% 13.8% 14.4%

60. Reno, NV 14.9% 13.8% 14.5%


Rounding out our top twenty markets in terms of vacancy, in

rankings eleven through 20 are; Washington DC (5.7%), Los

Angeles (5.9%), Santa Barbara (6.2%), Des Moines (6.6%),

Baltimore (6.7%), Austin (6.7%), Northern New Jersey (6.8%),

Miami (7.0%) and Seattle (7.2%).

Regional Outlooks


Mid-performing markets in terms of vacancy (rankings 21 through 40

in our survey) include a number of Southern markets where activity

is on the upswing (Houston and New Orleans are both extremely hot

markets), as well as a few Western trade areas where improvement

has been steadily accelerating over the past few months (Denver

and Seattle). This portion of our national vacancy survey includes;

Raleigh/Durham (7.3%), Charleston SC (7.3%), Denver (7.7%),

New Orleans (7.8%), Portland (7.9%), Philadelphia (8.0%), Little

Rock (8.1%), San Antonio (8.1%), Richmond (8.4%), Houston

(8.5%), Tulsa (8.6%), Hampton Roads (8.7%), Tucson (9.3%),

Louisville (9.6%), Chicago (9.6%), Orlando (9.6%), Tampa (9.7%),

Indianapolis (10.0%), Albuquerque (10.0%) and Dallas (10.2%).

Omaha

11.7%Mobile

10.3%Little Rock

8.1%

Largest Decrease in Vacancy (3Q 2013 vs 3Q 2012)

There are starkly different storylines present in the numbers of the

bottom 20 markets in our survey. Eight of them have seen vacancy

creep up over the past year—half of these trade areas had been

posting declining levels of vacancy until recently. In nearly every

case, sluggish occupancy growth combined with minimal levels of

new development conspired to drive vacancy levels higher. Yet, a

number of the markets in our bottom 20 have not only posted

declining levels of vacancy in the past year, but strong levels of

occupancy growth as well. The common thread here is that these

trade areas remain fragile with Class B and C product continuing to

face significant challenges for the most part. Rounding out our

national vacancy survey at rankings 41 through 60 were; Milwaukee

(10.3%), Mobile (10.3%), Kansas City (10.5%), Charlotte (10.5%),

Oklahoma City (10.6%), Inland Empire (10.6%), Nashville (10.6%),

Jacksonville (10.8%), St. Louis (10.9%), Sacramento (10.9%),

Omaha (11.7%), Las Vegas (11.8%), Cincinnati (11.9%), Phoenix

(12.2%), Detroit (12.2%), Atlanta (12.2%), Cleveland (12.6%),

Birmingham (13.7%), Memphis (13.9%) and Reno (14.9%).

Largest Increase in Vacancy (3Q 2013 vs 3Q 2012)

Phoenix

12.1%New Orleans

7.8%Nashville

10.6%The markets at the bottom of our survey are a mix of markets

geographically; Midwestern, southern and a few of the western

markets hardest hit by the housing market collapse. While most of

these markets are already showing signs of improvement

statistically, we anticipate improvement even in those trade areas

where vacancy levels increased over the past year. In our recent

surveying of brokers in the marketplace, even markets like Detroit

and Cleveland reported increasing retailer demand and tight

conditions for premium space. Most of these markets are only now

starting to see improving conditions for Class B product, but the

process has begun. Of course, the real challenge for many of these

trade areas is the overhang of Class C space in the market—which,

in most cases, will not be going away and will continue to negatively

impact overall numbers. Still, barring any unforeseen shocks to the

system, the current pace of occupancy growth should continue to

improve heading into 2014.


Statistical Overview

HAWAII Current Qtr Total SF Vac

Vac %Historical Vacancy Qrtly Net

Absorption

Last 12 Months Under Construction

Average Quoted RateShopping Centers Total GLA Prior Qtr Prior Yr Net Absorption Deliveries

Community/Neighborhood 15,134,224 546,590 3.6% 3.8% 3.7% 40,429 228,565 179,388 50,747 $32.20

Power/Regional Centers 6,700,281 184,302 2.8% 2.8% 3.5% 5,183 47,115 - - $36.35

Specialty Centers 790,201 121,279 15.3% 15.4% 17.3% 145 15,199 - - $39.35

Strip 1,564,849 111,501 7.1% 6.9% 5.8% (4,153) (20,959) - - $23.84

Malls 3,750,236 - 0.0% 0.7% 0.7% 25,223 26,288 - 15,558 $47.63

All Shopping Centers 27,939,791 963,672 3.4% 3.5% 3.6% 66,827 296,208 179,388 66,305

Pacific Summary

INLAND EMPIRE, CA* Current Qtr Total SF Vac


Absorption



Community/Neighborhood 73,509,676 8,440,298 11.5% 11.5% 11.4% 55,527 68,842 196,172 400,574 $15.61

Power/Regional Centers 20,581,685 1,795,608 8.7% 9.3% 10.3% 124,070 321,967 4,500 - $18.16

Specialty Centers 6,179,444 728,738 11.8% 12.6% 11.4% 51,792 (17,889) 4,990 - $20.21

Strip 14,112,273 1,704,086 12.1% 11.9% 12.1% (968) 81,046 90,445 - $15.84

Malls 12,463,786 764,798 6.1% 6.2% 6.8% 15,762 234,593 165,750 - $39.86

All Shopping Centers 126,846,864 13,433,528 10.6% 10.3% 10.5% 246,183 688,559 461,857 400,574

LOS ANGELES, CA Current Qtr Total SF Vac


Absorption





Specialty Centers 7,412,940 411,163 5.5% 4.0% 4.2% 16,724 33,097 135,000 200,000 $40.02

Strip 38,372,329 2,908,626 7.6% 7.8% 8.0% 96,627 292,168 124,042 91,614 $22.93

Malls 29,587,724 597,252 2.0% 2.3% 2.6% 96,442 177,696 4,088 - $20.84

All Shopping Centers 228,732,882 13,399,608 5.9% 5.7% 6.0% 355,818 1,182,956 344,564 458,832

OAKLAND/EAST BAY, CA Current Qtr Total SF Vac


Absorption





Specialty Centers 1,934,567 56,652 2.9% 2.9% 3.4% - 398,327 402,589 147,214 $30.00

Strip 6,071,429 518,428 8.5% 8.4% 8.2% (3,251) 14,953 23,802 16,588 $19.77

Malls 7,889,741 393,549 5.0% 5.0% 4.4% 9 (45,446) - - $25.39


ORANGE COUNTY, CA Current Qtr Total SF Vac


Absorption



Community/Neighborhood 54,867,423 3,641,676 6.6% 6.9% 6.7% 161,852 61,166 13,501 - $22.59

Power/Regional Centers 11,744,315 666,307 5.7% 5.7% 6.3% (122) 68,694 - - $28.33

Specialty Centers 4,814,056 559,357 11.6% 11.8% 11.3% 10,564 (16,095) - 460,208 $24.42

Strip 11,639,376 754,103 6.5% 6.6% 8.2% 20,204 205,578 11,774 - $21.64

Malls 14,046,168 359,708 2.6% 2.7% 2.9% 15,069 70,019 16,000 14,600 $37.09


*Riverside & San Bernardino Counties, CA



PORTLAND, OR Current Qtr Total SF Vac


Absorption




Power/Regional Centers 14,075,507 934,242 6.6% 6.0% 6.5% (25,732) 171,915 203,633 6,969 $17.68

Specialty Centers 2,101,207 32,964 1.6% 1.3% 3.1% (4,803) 31,563 - - $32.39

Strip 8,835,479 1,113,824 12.6% 12.7% 12.7% 16,365 19,844 9,039 - $15.93

Malls 6,768,604 326,971 4.8% 5.1% 4.7% 17,599 (6,922) - - $15.17


Pacific Summary

SACRAMENTO, CA Current Qtr Total SF Vac


Absorption




Power/Regional Centers 15,096,979 1,211,406 8.0% 10.1% 10.9% 328,816 465,427 33,955 109,497 $19.47

Specialty Centers 3,389,584 385,161 11.4% 11.2% 11.4% (5,728) 22,219 25,216 - $21.25

Strip 10,663,945 1,715,890 16.1% 16.0% 15.7% (7,432) (37,267) 5,000 - $14.67

Malls 4,587,805 99,301 2.2% 2.2% 2.2% - - - 21,000


SAN DIEGO, CA Current Qtr Total SF Vac


Absorption




Power/Regional Centers 12,397,567 444,550 3.6% 3.6% 3.8% 5,007 37,557 6,000 5,600 $26.47

Specialty Centers 2,189,818 99,254 4.5% 4.3% 5.6% (5,910) 22,509 - 115,000 $22.53

Strip 10,828,690 792,569 7.3% 7.6% 8.1% 33,888 93,891 4,881 3,900 $19.34

Malls 12,513,425 27,685 0.2% 0.2% 1.0% - 251,313 160,000 - $36.00


SAN FRANCISCO, CA* Current Qtr Total SF Vac


Absorption



Community/Neighborhood 7,644,197 328,781 4.3% 4.4% 3.7% 9,826 (47,182) - 270,000 $27.68


Specialty Centers 1,484,246 34,965 2.4% 2.5% 3.3% 2,579 13,845 - - $60.00

Strip 1,909,880 63,387 3.3% 3.4% 5.1% 1,319 34,183 - - $28.27

Malls 3,871,160 69,991 1.8% 2.0% 1.9% 5,671 2,670 - 96,000 $30.00

All Shopping Centers 18,580,279 550,423 3.0% 3.0% 3.0% 30,929 60,767 - 366,000

SAN JOSE, CA Current Qtr Total SF Vac


Absorption





Specialty Centers 715,372 - 0.0% 0.0% 2.3% - 16,600 - -

Strip 5,613,855 319,948 5.7% 5.7% 6.9% (2,424) 97,543 33,276 - $25.51

Malls 7,587,949 111,465 1.5% 1.4% 1.5% (5,262) 5,436 - - $33.00


*Includes San Francisco and San Mateo Counties



SANTA BARBARA, CA Current Qtr Total SF Vac


Absorption



Community/Neighborhood 5,917,025 507,625 8.6% 8.4% 8.9% (12,113) 21,761 - - $18.11


Specialty Centers - - 0.0% 0.0% 0.0% - - - - $-

Strip 960,025 45,952 4.8% 5.1% 4.4% 3,437 (3,697) - - $20.22

Malls - - 0.0% 0.0% 0.0% - - - - $-

All Shopping Centers 9,410,540 584,140 6.2% 6.1% 6.2% (2,396) 33,686 - -

Pacific Summary

SEATTLE, WA Current Qtr Total SF Vac


Absorption





Specialty Centers 2,977,535 148,963 5.0% 5.0% 6.3% - 39,589 - - $24.63

Strip 12,368,113 1,174,451 9.5% 9.1% 10.4% (51,543) 121,539 8,400 - $18.17

Malls 10,303,646 154,336 1.5% 1.5% 1.6% (18) 8,574 - 7,250 $29.53


ALBUQUERQUE, NM Current Qtr Total SF Vac


Absorption



Community/Neighborhood 14,958,420 1,580,455 10.6% 10.5% 11.0% 856 73,141 - - $12.36

Power/Regional Centers 1,722,711 84,956 4.9% 3.1% 1.8% (31,753) (51,393) 3,000 - $16.13

Specialty Centers 252,283 9,000 3.6% 3.6% 3.6% - - - -

Strip 3,576,399 378,352 10.6% 10.5% 12.2% 7,218 66,393 11,544 - $13.93

Malls 3,182,681 321,608 10.1% 10.1% 10.1% - - - - $9.00

All Shopping Centers 23,692,494 2,374,371 10.0% 9.7% 10.1% (23,679) 88,141 14,544 -

Mountain Summary

DENVER, CO Current Qtr Total SF Vac


Absorption




Power/Regional Centers 24,909,067 1,663,260 6.7% 6.4% 7.5% (70,804) 240,177 39,256 - $18.66

Specialty Centers 1,929,458 80,345 4.2% 5.7% 4.5% 30,034 35,249 30,960 - $21.57

Strip 9,986,637 884,709 8.9% 9.7% 10.3% 82,332 176,416 38,742 7,500 $14.86

Malls 13,761,334 573,994 4.2% 4.2% 4.4% (962) 34,695 - 14,000 $22.81




LAS VEGAS, NV Current Qtr Total SF Vac


Absorption



Community/Neighborhood 41,655,980 6,055,058 14.5% 14.6% 15.5% 23,166 419,781 - 8,400 $14.97


Specialty Centers 2,921,963 198,805 6.8% 6.9% 9.4% 3,500 76,170 - 192,432 $22.64

Strip 9,419,903 1,381,683 14.7% 14.7% 15.8% 14,497 117,583 8,838 - $14.78

Malls 6,460,295 317,707 4.9% 6.6% 4.8% 109,890 (4,703) - 1,500,000 $22.70

All Shopping Centers 76,619,791 9,039,200 11.8% 11.1% 12.2% 126,380 793,911 21,242 1,700,832

Mountain Summary

PHOENIX, AZ Current Qtr Total SF Vac


Absorption



Community/Neighborhood 89,976,969 12,885,843 14.3% 14.6% 16.3% 263,804 1,910,701 175,771 9,500 $13.62



Strip 13,226,389 2,297,208 17.4% 17.2% 18.9% (28,762) 223,434 20,022 - $13.44

Malls 20,339,279 1,125,903 5.5% 6.1% 6.5% 113,003 190,172 - - $25.15


RENO, NV Current Qtr Total SF Vac


Absorption



Community/Neighborhood 11,427,939 1,525,294 13.3% 12.9% 13.8% (50,247) 53,094 - - $14.10

Power/Regional Centers 3,062,713 712,469 23.3% 23.0% 23.2% (7,671) 2,984 - - $12.99

Specialty Centers 690,674 68,622 9.9% 9.9% 4.8% - (35,423) - - $21.00

Strip 2,823,926 502,048 17.8% 17.2% 19.0% (6,725) 44,193 11,968 - $15.41

Malls 1,926,419 151,651 7.9% 7.9% 8.2% - 29,837 24,837 - $18.94


SALT LAKE CITY, UT Current Qtr Total SF Vac


Absorption



Community/Neighborhood 33,563,962 1,695,438 5.1% 4.9% 5.8% (64,309) 452,325 220,000 - $12.67

Power/Regional Centers 9,811,783 602,187 6.1% 5.9% 5.8% (19,073) (28,553) - - $14.89


Strip 7,065,440 465,789 6.6% 6.9% 7.7% 23,831 76,825 - - $13.96

Malls 8,960,949 361,172 4.0% 4.0% 4.7% (5,908) 69,048 13,494 - $19.74

All Shopping Centers 61,776,331 3,418,598 5.5% 5.3% 5.9% (47,860) 837,191 587,470 53,153

TUCSON, AZ Current Qtr Total SF Vac


Absorption



Community/Neighborhood 18,477,105 2,009,974 10.9% 10.8% 12.1% (18,777) 249,218 21,002 127,606 $14.72

Power/Regional Centers 5,302,358 243,103 4.6% 4.6% 6.0% 104,415 333,374 269,659 - $18.94

Specialty Centers 916,241 64,658 7.1% 7.1% 7.6% 465 5,121 - - $23.54

Strip 3,850,117 523,594 13.6% 14.1% 13.9% 19,877 11,505 - - $12.87

Malls 2,384,488 31,612 1.3% 1.3% 1.4% - 2,047 - - $26.77




DES MOINES, IA Current Qtr Total SF Vac


Absorption



Community/Neighborhood 8,661,881 514,396 5.9% 6.1% 6.7% 9,698 69,267 - - $10.02


Specialty Centers 503,259 12,888 2.6% 5.5% 6.0% 14,725 17,467 - 17,500 $21.51

Strip 2,389,441 279,222 11.7% 12.2% 14.1% 12,946 86,528 34,244 - $11.06

Malls 5,022,149 222,407 4.4% 4.4% 4.6% - 6,515 - - $16.37


Midwest/Great Plains Summary

KANSAS CITY, MO Current Qtr Total SF Vac


Absorption



Community/Neighborhood 43,694,810 4,864,215 11.1% 10.9% 11.6% (33,149) 247,472 65,100 6,000 $10.98



Strip 7,053,345 997,874 14.1% 14.4% 15.0% 19,384 67,146 7,004 - $11.98

Malls 8,047,849 197,556 2.5% 2.9% 2.9% 39,334 33,809 - - $24.68


MINNEAPOLIS/ST. PAUL, MN Current Qtr Total SF Vac


Absorption






Strip 11,581,408 1,262,590 10.9% 11.1% 12.2% 24,263 176,681 36,470 - $12.76

Malls 12,433,098 446,919 3.6% 3.6% 3.6% 50,278 51,493 56,410 29,789 $17.43


OMAHA, NE Current Qtr Total SF Vac


Absorption



Community/Neighborhood 13,563,536 1,645,584 12.1% 11.6% 11.9% (66,340) (35,610) - - $11.28

Power/Regional Centers 7,297,312 980,004 13.4% 13.5% 8.9% 3,826 (323,307) 4,569 - $9.70

Specialty Centers 256,566 - 0.0% 0.0% 2.0% - 5,071 - - $18.00

Strip 3,978,606 484,780 12.2% 13.1% 13.3% 36,610 53,687 9,000 - $11.57

Malls 2,323,394 84,557 3.6% 5.6% 5.6% 46,584 46,584 - - $10.07

All Shopping Centers 27,419,414 3,194,925 11.7% 10.6% 9.5% 20,680 (253,575) 13,569 -

ST. LOUIS, MO Current Qtr Total SF Vac


Absorption




Power/Regional Centers 12,462,325 1,126,072 9.0% 9.2% 9.6% 20,675 65,049 - - $14.19


Strip 9,445,442 1,211,387 12.8% 13.0% 13.7% 14,671 105,655 23,311 44,600 $13.10

Malls 13,766,739 1,623,944 11.8% 11.9% 11.8% 9,666 (4,395) - - $15.57




CHICAGO, IL Current Qtr Total SF Vac


Absorption






Strip 34,760,267 4,615,506 13.3% 12.8% 12.8% (78,551) (83,473) 89,083 37,000 $16.01

Malls 29,920,842 1,073,862 3.6% 3.1% 2.8% (153,191) (248,356) - - $21.96

All Shopping Centers 251,698,860 24,149,415 9.6% 9.5% 9.8% 986,717 2,302,129 1,074,355 248,378

Midwest/Great Lakes Summary

CINCINNATI/DAYTON, OH Current Qtr Total SF Vac


Absorption




Power/Regional Centers 15,378,908 1,337,074 8.7% 8.8% 10.1% 19,404 211,332 - - $15.23

Specialty Centers 5,105,176 217,890 4.3% 4.6% 4.3% 19,387 482 - - $11.30

Strip 9,429,834 1,280,794 13.6% 13.6% 13.3% 39,012 13,611 45,488 - $12.75

Malls 10,878,335 905,521 8.3% 8.4% 9.2% 7,340 104,417 6,500 - $9.37

All Shopping Centers 90,516,097 10,768,924 11.9% 11.8% 12.3% 189,952 726,275 60,512 -

CLEVELAND, OH Current Qtr Total SF Vac


Absorption




Power/Regional Centers 24,468,040 2,379,068 9.7% 9.6% 10.3% (4,315) 176,847 49,697 16,900 $12.22

Specialty Centers 2,146,016 274,591 12.8% 12.8% 13.0% - 4,598 - - $19.17

Strip 10,723,735 1,211,861 11.3% 11.5% 11.5% 26,525 39,194 22,397 - $11.17

Malls 16,914,339 2,752,433 16.3% 16.2% 16.3% (5,500) 12,633 - - $14.17


DETROIT, MI Current Qtr Total SF Vac


Absorption






Strip 19,581,837 3,054,587 15.6% 15.5% 15.7% (3,479) 49,068 39,356 11,612 $13.23

Malls 21,394,688 1,383,426 6.5% 6.5% 6.6% 2,676 34,491 - - $7.05


INDIANAPOLIS, IN Current Qtr Total SF Vac


Absorption




Power/Regional Centers 14,857,129 1,433,434 9.6% 9.5% 9.5% (26,690) (19,700) - 35,000 $16.82

Specialty Centers 902,823 20,976 2.3% 3.2% 7.0% 8,000 42,024 - -

Strip 7,272,470 870,131 12.0% 11.6% 11.2% (27,618) (45,204) 13,373 - $13.52

Malls 8,885,346 475,855 5.4% 5.3% 5.4% (4,439) (200) - - $14.23




MILWAUKEE/MADISON, WI Current Qtr Total SF Vac


Absorption






Strip 7,901,887 846,446 10.7% 10.9% 11.7% 15,115 112,704 35,334 - $13.44

Malls 7,695,328 992,632 12.9% 12.9% 13.1% - 19,214 - - $8.12


Midwest Great Lakes Summary

AUSTIN, TX Current Qtr Total SF Vac


Absorption






Strip 6,674,898 737,529 11.0% 10.6% 11.7% (32,236) 82,932 43,246 3,550 $17.97

Malls 5,233,547 10,754 0.2% 0.1% 0.2% 434 3,934 6,200 -


DALLAS, TX Current Qtr Total SF Vac


Absorption




Power/Regional Centers 32,156,099 1,841,742 5.7% 5.5% 6.0% (84,877) 134,096 56,356 370,838 $19.82


Strip 31,081,505 3,761,716 12.1% 11.9% 13.4% 28,711 622,542 236,624 26,525 $14.62

Malls 26,522,259 1,404,564 5.3% 5.0% 5.2% (67,193) (14,100) - - $21.27


HOUSTON, TX Current Qtr Total SF Vac


Absorption






Strip 34,492,164 3,667,900 10.6% 10.3% 10.5% (56,392) 118,975 149,680 57,250 $15.81

Malls 23,676,443 1,114,209 4.7% 4.6% 4.8% (29,939) 14,870 - - $15.98

All Shopping Centers 210,861,663 17,987,738 8.5% 8.4% 8.8% 116,412 2,027,970 1,065,556 185,718

Texas/Panhandle/Lower Mississippi Delta Summary



LITTLE ROCK, AR Current Qtr Total SF Vac


Absorption



Community/Neighborhood 11,220,024 1,182,122 10.5% 9.2% 8.3% (152,781) (252,387) - - $9.98

Power/Regional Centers 4,976,430 183,793 3.7% 3.5% 3.4% 2,109 (3,291) 10,000 - $16.42

Specialty Centers 977,856 57,726 5.9% 5.3% 7.0% (6,060) 11,203 - - $19.80

Strip 3,656,909 253,986 6.9% 6.7% 6.7% (10,664) (2,658) 7,600 - $14.33

Malls - - 0.0% 0.0% 0.0% - - - - $-

All Shopping Centers 20,831,219 1,677,627 8.1% 7.2% 6.7% (167,396) (247,133) 17,600 -

Texas/Panhandle/Lower Mississippi Delta Summary

NEW ORLEANS, LA Current Qtr Total SF Vac


Absorption





Specialty Centers 1,564,808 44,385 2.8% 2.8% 3.6% - 12,066 - -

Strip 3,235,349 387,618 12.0% 11.9% 12.7% (1,700) 23,469 - - $13.50

Malls 5,275,326 128,769 2.4% 2.1% 4.1% (18,192) 86,999 - - $19.36


OKLAHOMA CITY, OK Current Qtr Total SF Vac


Absorption





Specialty Centers 707,996 72,703 10.3% 10.2% 17.5% (574) 74,228 28,000 - $15.86

Strip 6,981,680 516,016 7.4% 8.3% 8.6% 60,241 90,083 4,080 - $11.42

Malls 3,002,340 732,234 24.4% 24.4% 31.1% - 202,029 - - $6.00


SAN ANTONIO, TX Current Qtr Total SF Vac


Absorption






Strip 9,344,270 907,921 9.7% 9.2% 9.5% (36,207) 27,578 51,686 7,542 $14.40

Malls 8,706,759 109,514 1.3% 1.3% 1.8% 7,013 51,378 - - $25.78

All Shopping Centers 64,106,633 5,182,337 8.1% 7.7% 9.0% (117,733) 1,287,722 516,758 125,052

TULSA, OK Current Qtr Total SF Vac


Absorption





Specialty Centers 1,114,427 126,876 11.4% 11.5% 8.9% 814 (27,402) - - $13.56

Strip 5,986,480 448,629 7.5% 7.6% 6.5% 6,998 (25,207) 38,785 - $11.07

Malls 3,007,296 65,310 2.2% 1.9% 1.5% (7,000) (20,305) - - $28.29




BIRMINGHAM, AL Current Qtr Total SF Vac


Absorption



Community/Neighborhood 22,365,185 3,091,397 13.8% 13.9% 14.9% 10,060 238,440 - - $8.13



Strip 5,209,886 475,604 9.1% 9.3% 9.3% 11,086 9,528 2,415 - $11.58

Malls 2,469,936 763,147 30.9% 28.6% 15.4% (56,058) (382,801) - - $42.00


Southern US Summary

LOUISVILLE, KY Current Qtr Total SF Vac


Absorption





Specialty Centers 364,956 89,707 24.6% 29.7% 34.2% 18,687 35,187 - - $16.82

Strip 3,564,171 576,107 16.2% 15.0% 14.6% (19,620) (21,936) 40,765 - $13.42

Malls 3,668,576 395,899 10.8% 10.6% 9.8% (8,764) (36,486) - - $8.63


MEMPHIS, TN Current Qtr Total SF Vac


Absorption




Power/Regional Centers 8,360,337 749,223 9.0% 9.0% 8.7% 3,478 (20,879) - 5,300 $9.36

Specialty Centers 1,588,394 338,948 21.3% 21.3% 21.3% - (726) - - $21.64

Strip 7,352,896 894,439 12.2% 12.3% 12.8% 9,145 56,113 9,759 2,400 $12.68

Malls 3,194,627 849,040 26.6% 26.6% 26.9% - 11,638 - - $1.19


MOBILE, AL Current Qtr Total SF Vac


Absorption



Community/Neighborhood 9,157,477 984,563 10.8% 10.2% 9.6% (53,919) (101,377) - - $10.39

Power/Regional Centers 1,775,117 119,802 6.7% 6.7% 6.7% - (1,356) - - $18.00

Specialty Centers 1,777,656 393,418 22.1% 15.5% 10.4% (118,648) (208,394) - - $14.31

Strip 2,463,135 228,682 9.3% 9.3% 9.8% (651) 12,897 - - $11.12

Malls 2,470,766 98,704 4.0% 4.0% 4.0% - - - -

All Shopping Centers 17,644,151 1,825,169 10.3% 8.6% 7.9% (173,218) (298,230) - -

NASHVILLE, TN Current Qtr Total SF Vac


Absorption



Community/Neighborhood 29,961,144 3,101,545 10.4% 10.5% 11.8% 31,072 421,735 - - $12.25



Strip 5,814,180 603,754 10.4% 10.7% 11.0% 34,019 66,365 37,537 - $14.39

Malls 7,154,069 779,640 10.9% 13.4% 13.4% 176,364 180,807 - - $24.00




ATLANTA, GA Current Qtr Total SF Vac


Absorption






Strip 35,039,082 5,138,984 14.7% 15.1% 15.3% 166,540 237,465 32,872 - $13.32

Malls 24,152,446 1,181,989 4.9% 5.0% 7.3% 31,418 587,299 - - $25.03


Southeast Summary

CHARLESTON, SC Current Qtr Total SF Vac


Absorption





Specialty Centers 581,969 - 0.0% 0.0% 0.0% - - - - $24.99

Strip 2,954,868 309,790 10.5% 11.0% 8.6% 15,439 (55,226) - - $13.45

Malls 2,101,239 6,560 0.3% 0.3% 0.7% - 8,150 - - $20.00


CHARLOTTE, NC Current Qtr Total SF Vac


Absorption





Specialty Centers 3,664,847 428,300 11.7% 11.8% 10.5% 4,807 (41,808) - - $9.72

Strip 9,107,862 1,112,535 12.2% 12.2% 13.0% 3,290 100,933 34,812 - $13.24

Malls 8,062,653 803,564 10.0% 10.0% 9.3% (9) (53,084) - - $15.37


HAMPTON ROADS, VA Current Qtr Total SF Vac


Absorption




Power/Regional Centers 9,611,687 339,915 3.5% 3.5% 3.4% (1,975) (8,784) 3,750 - $19.86


Strip 6,893,034 702,141 10.2% 10.5% 10.0% 38,795 45,987 65,824 9,930 $13.97

Malls 5,873,965 388,182 6.6% 6.4% 6.1% (9,698) (31,458) - - $16.26


JACKSONVILLE, FL Current Qtr Total SF Vac


Absorption




Power/Regional Centers 4,130,606 574,851 13.9% 13.9% 14.9% - 39,515 - - $10.19

Specialty Centers 1,158,502 62,400 5.4% 5.4% 5.4% - - - -

Strip 7,493,149 957,755 12.8% 12.7% 12.8% (7,825) 21,642 12,736 17,000 $13.72

Malls 5,843,080 185,299 3.2% 3.2% 3.5% 7,309 32,995 11,987 - $17.08




Southeast SummaryMIAMI, FL Current Qtr

Total SF VacVac %

Historical Vacancy Qrtly Net Absorption




Power/Regional Centers 17,082,433 1,197,491 7.0% 7.1% 7.5% 15,499 84,573 - 500,000 $21.83


Strip 25,170,487 1,711,703 6.8% 6.4% 6.7% (110,742) 22,805 40,163 - $19.45

Malls 23,695,482 414,110 1.7% 1.9% 2.2% 27,139 150,139 35,000 - $34.15

All Shopping Centers 178,320,395 12,528,898 7.0% 6.9% 7.1% (9,680) 876,627 533,226 1,000,000

ORLANDO, FL Current Qtr Total SF Vac


Absorption






Strip 10,744,699 1,427,824 13.3% 13.3% 12.8% 1,673 (18,627) 30,622 - $15.00

Malls 13,205,195 712,788 5.4% 5.4% 3.7% (1) (222,029) - - $15.16


RALEIGH/DURHAM, NC Current Qtr Total SF Vac


Absorption





Specialty Centers 2,803,241 76,995 2.7% 2.9% 2.5% 5,000 (7,757) - 90,102 $14.84

Strip 3,770,134 509,365 13.5% 13.1% 11.9% (15,978) (57,141) 6,000 4,706 $15.54

Malls 7,073,104 130,849 1.8% 1.8% 1.8% (1,181) (99) - - $30.00


RICHMOND, VA Current Qtr Total SF Vac


Absorption




Power/Regional Centers 7,686,441 370,872 4.8% 4.6% 4.9% (18,208) 6,281 - 20,011 $19.08

Specialty Centers 54,528 - 0.0% 0.0% 0.0% - - - -

Strip 4,140,121 384,405 9.3% 9.6% 11.8% 13,017 103,574 - - $14.45

Malls 4,282,901 84,562 2.0% 2.0% 2.0% 2,443 2,943 - - $17.00


TAMPA, FL Current Qtr Total SF Vac


Absorption



Community/Neighborhood 74,212,473 8,048,500 10.8% 11.0% 10.8% 133,128 (52,695) 26,970 904,232 $12.73



Strip 18,489,224 2,164,544 11.7% 11.5% 11.4% (21,227) (21,726) 32,150 - $14.07

Malls 11,675,582 410,247 3.5% 3.5% 3.6% 3,594 15,502 - - $25.52

All Shopping Centers 120,402,651 11,627,121 9.7% 9.4% 9.2% 93,539 (72,801) 59,120 904,232



Northeast Summary

BOSTON, MA Current Qtr Total SF Vac


Absorption




Power/Regional Centers 25,447,408 960,799 3.8% 3.5% 3.6% (74,836) (48,372) 2,260 395,000 $12.80

Specialty Centers 3,893,302 174,374 4.5% 4.2% 6.0% (10,000) 443,251 409,000 177,000 $18.88

Strip 14,400,242 1,199,109 8.3% 8.3% 8.4% (5,970) 47,384 40,359 3,900 $14.82

Malls 17,686,301 514,702 2.9% 2.9% 2.7% - (30,000) - -


NEW YORK CITY METRO* Current Qtr Total SF Vac


Absorption






Strip 18,050,366 1,492,468 8.3% 8.2% 7.8% (8,671) (57,437) 23,686 - $21.04

Malls 27,610,959 339,801 1.2% 1.3% 1.4% 6,080 36,053 - - $30.97


* includes New York City, Long Island and Southern CT

BALTIMORE, MD Current Qtr Total SF Vac


Absorption






Strip 6,157,690 493,072 8.0% 7.6% 7.6% 2,475 24,380 55,532 - $18.01

Malls 12,402,564 795,582 6.4% 6.4% 6.5% 3,478 16,099 - - $26.72


NORTHERN NEW JERSEY Current Qtr Total SF Vac


Absorption






Strip 15,623,191 1,571,707 10.1% 10.2% 10.4% 29,247 83,744 41,700 14,000 $19.55

Malls 30,739,417 678,738 2.2% 2.1% 2.2% (18,164) (12,595) - 747,500 $51.37

All Shopping Centers 161,993,714 10,946,424 6.8% 6.7% 7.2% 298,312 1,351,174 85,151 1,149,154

PHILADELPHIA Current Qtr Total SF Vac


Absorption






Strip 20,071,416 1,909,978 9.5% 9.3% 9.4% (51,991) (6,562) 15,687 - $14.23

Malls 29,139,081 1,347,782 4.6% 4.7% 3.8% 8,288 (250,297) - - $18.67




Northeast SummaryPITTSBURGH, PA Current Qtr

Total SF VacVac %

Historical Vacancy Qrtly Net Absorption





Specialty Centers 2,359,492 101,415 4.3% 4.4% 4.7% 2,585 8,912 - -

Strip 4,712,936 331,617 7.0% 6.7% 7.5% (15,027) 136,445 89,530 - $15.71

Malls 11,845,773 431,591 3.6% 3.1% 6.1% (65,481) 499,053 225,000 - $12.36


WASHINGTON, DC Current Qtr Total SF Vac


Absorption






Strip 12,914,382 1,037,666 8.0% 8.0% 8.9% 41,936 182,980 72,686 5,775 $20.53

Malls 29,684,197 983,520 3.3% 3.3% 2.3% 4,279 (163,060) 148,000 - $17.04

All Shopping Centers 177,930,757 10,058,520 5.7% 5.7% 5.6% 954,932 1,094,320 865,843 1,140,666


MethodologyCassidy Turley’s quarterly estimates are derived from a variety of data sources, including its

own proprietary sample of market activity, historical inventory data from Bureau of Labor

Statistics Employment data, CoStar and other third party data sources. The market statistics

are calculated from a base building inventory made up of shopping center properties

deemed to be competitive in the local retail markets. The inventory is subject to revisions

due to resampling. Vacant space is defined as space that is available immediately or three

months (90 days) after the end of the quarter. Sublet space still occupied by the tenant is

not counted as available space.

The figures provided for the current quarter are preliminary, and all information contained in

the report is subject to correction of errors and revisions based on additional data received.

Explanation of TermsTotal Inventory: The total amount of retail space within a shopping center.

Total Space Available: The sums of new, relet and sublet space that is unoccupied and

being actively marketed.

Vacancy Rate: The amount of unoccupied space (new, relet and sublet) expressed as a

percentage of total inventory.

Absorption: The net change in occupied space between two points in time. (Total

occupied space in the present quarter minus total occupied space from the previous

quarter, quoted on a net, not gross, basis.)

Asking Rents: Triple net average asking rents.

Disclaimer

This report and other research materials

may be found on our website at

www.cassidyturley.com. This is a research

document of Cassidy Turley in Washington,

DC. Questions related to information

herein should be directed to the Research

Department at 202-463-2100. Information

contained herein has been obtained

from sources deemed reliable and no

representation is made as to the accuracy

thereof. Cassidy Turley is a leading

commercial real estate services provider,

with 400 million square feet managed on

behalf of institutional, private and corporate

clients and $22 billion in completed

transactions for 2012.

Regional Map

WestMidwestSouthNortheast

Methodology


Key Statistics

• More than 60 U.S. offices

• 65 international offices*

• More than 3,800 professionals

• More than 970 brokers

• 2012 transactions

– Gross transaction volume

$22 billion

– Gross capital markets

volume $9.2 billion

• 400 million sf managed

portfolio on behalf of

institutional, corporate and

private clients

• More than 23,000 client

locations served

*Through GVA Partnership

A Leader in Commercial Real Estate ServicesAt Cassidy Turley, we are market leaders, industry leaders and community leaders. Nationwide, clients recognize us for the creative

sophistication of our real estate advice as well as for the discipline and accuracy of our service delivery. We are a trusted partner and

advocate, supporting our clients’ overall business performance. In markets across the country, we are respected as a leading provider of

commercial real estate services as well as for our community engagement. Our thorough understanding of local business practices and

market dynamics, combined with our customer focus and service commitment, give our clients a distinct edge in commercial real estate

across the globe.

Local Market Leaders, Nationwide• Our professionals have deep ties to our communities and our industry, and a thorough

understanding of local business leaders and practices, giving Cassidy Turley and our

clients an edge.

• Our in-depth, local market knowledge provides a comprehensive understanding of

market dynamics and enables us to effectively forecast market trends – providing

insight to clients and helping them make informed real estate decisions.

• Our leadership position is recognized in the communities we serve. We are often rated

in local business journals as a “Best Place to Work,” and are honored for our many

local philanthropic efforts.

Industry Leadership• Named to Leaders List of 2013 Global Outsourcing 100

• Over 80% of real estate executives familiar with our brand ranked it Very Good or

Excellent – Wall Street Journal survey

• Ranked a Top 5 Brand – Lipsey’s 2013 Commercial Real Estate Brandy Survey

• Ranked in the Top 5 in Best Practices Index – Commercial Property Executive

• 2012 Greenest Company Index – Commercial Property Executive

• Named by the EPA a 2013 ENERGY STAR® Partner of the Year

World-Class Expertise• Many of our associates have honed their skills in their respective markets for years –

even decades – gaining an understanding of industry best practices and serving as

thought leaders.

• Cassidy Turley has served clients’ needs outside of the United States since 1985. In

order to better serve our clients in Europe and Asia-Pacific, Cassidy Turley is proud

to partner with GVA, the founder and majority shareholder of GVA Worldwide, which

serves key markets in over 25 countries.

Key Cassidy Turley Statistics

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Cassidy Turley - Retail Forecast 2014

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