In October, 2009 Morgan Stanley published its Mall and Lifestyle Center Handbook. (Special thanks to Stephen Baumgarten, Senior Vice President Wealth Advisor Morgan Stanley Smith Barney Beachwood, Ohio for sharing the handbook with us). The handbook is a must read for all retail developers, lenders, investors and retailers to understand the market forces impacting shopping center development and investment.
The handbook goes into great depth and analysis of the current state of the retail center real estate industry. As of the date of publication of the handbook there were 1,095 regional malls in the United States and 268 lifestyle centers. In 2007/2008 mall supply shrank 1.6% while lifestyle centers grew by 56% to 122 million square feet of space.
The handbook analyzes "mall quality" identifying the characteristics which include some of the following: (i) trade area size and growth; (ii) tenant line-up; (iii) presence of "fresh" retail concepts; and (iv) anchor identity.
The authors of the handbook found that: (i) lifestyle centers presently have a competitive advantage over regional malls as a result of the variety of their tenant mix and less dependence on anchor tenants and apparel retailers; and (ii) public companies own 84% of the top 100 regional malls, while only 4 of the top 20 leading lifestyle centers are owned by public companies.
The authors predict that there will be consolidation in the shopping center industry as well as capitalized public companies and private investors look to expand over the next five years.
Finally, the handbook contains an appendix of charts and analysis for market strength and market density for 40 of the largest United States metropolitan markets.
So, what can we take away from this study? OPPORTUNITY does exist for current center owners to dispose of debt laiden centers; OPPORTUNTY does exist for REIT's and investors to acquire properties at reasonable cap rates; OPPORTUNITY does exist for lender's to finance well capitalized projects; and OPPORTUNITY does exist for retailers to enter centers which may not have previously been available.
Here is wishing for a strong Black Friday and a healthy holiday shopping season !