Over the past few weeks I have been having discussions with clients who own retail properties about the forecast for their properties. It seems that the supply and demand dynamics of retail space has taken a turn toward over supply. Due to the construction lag in expected supply the market now seems to have experienced a gap between tenant demand and vacant space. This it typical and temporary in each property type and in most any market. It's just a part of the real estate cycle that occurs as investors react to the demand from tenants.
What does that mean? Well, the supply and demand of tenants in relation to properties has a correlating effect on values of such properties. As mentioned in previous posts there are MANY factors that affect property value, and I merely attempt to highlight one at a time. Anyway, as vacancy rates increase, investor confidence tends to wane therefore leading investors to reduce holdings or at least hold off new construction projects. If you subscribe the supply and demand theme , two events can occur. (1) Retail spaces can be converted to alternative uses thus taking retail space off the market and reducing supply, or (2) the market can wait in anticipation that, in time, tenant demand will increase and fill vacant spaces to a comfortable level. While a prudent investor should consider all options, we tend to believe that over the long run the market will perform in a somewhat expected trend. Therefore, most will believe that there is no need to have a fire-sale of retail properties, however, you might want to consider other property types in the short term.
UPDATE: since I completed the rough draft of this post, an article written by Matt Hudgins hit on some of the points above.
