REIT market's retail sector holding up

By Jeff Benjamin

Nov 20, 2011 @ 12:01 am (Updated 11:19 pm) EST

To hear it from the perspective of retail-sector real estate specialists, it might be easy to assume that the U.S. economy is moving full-steam ahead, and that bodes well for investors in retail properties, particularly outlet centers.

“Retail sales are holding up well because consumers are still spending,” said David Henry, president and chief executive of Kimco Realty Corp. “People are tired of being scared, and 90% of them are still working.”

Mr. Henry was part of a panel discussion last week in Dallas at the National Association of Real Estate Investment Trusts' annual convention.

Panel moderator Jeffrey Donnelly, managing director of equity research at Wells Fargo Securities LLC, pointed out that the retail segment has been one of the strongest REIT sectors since the recovery began in March 2009.

But though the story for the retail sector is rosy on the surface, a closer look exposes some unique challenges for REITs and investors, according to panelist Sandeep Mathrani, chief executive of General Growth Properties Inc.

Elaborating on a reference to a barbell, which underscores strong retail sales at both the high-end and at the deep-discount end of the market, he pointed out that luxury goods continue to do well because unemployment is still relatively low for better-educated consumers.

LOTS OF MOMENTUM

In terms of where consumers are spending their money, panelist Steven Tanger, president and chief executive of Tanger Factory Outlet Centers Inc., said that outlet shopping centers have plenty of momentum.

“In tough times like these, people like a bargain, but they also gravitate to brand names,” he said.

Mr. Tanger also suggested that there is an evolution coming to the outlet space, which continues to create investment opportunities for real estate investors.

“It used to be that outlet centers were located two hours away from metropolitan areas, but now they're sometimes as close as 10 miles away,” he said.

The total U.S. footprint for outlet centers is about 50 million square feet in 150 outlet centers, Mr. Tanger said.

In Chicago alone, retail-shopping space covers 170 million square feet.

“I could see the number of outlet centers growing to 250 in the next two years,” Mr. Tanger said. “Any [retailer] trying to grow has part of the focus on the outlets.”

The Nareit conference, REIT World 2011, attracted more than 1,200 attendees, including REIT executives, portfolio managers and investment bankers, all seeking nuggets of information about the real estate market.

Email Jeff Benjamin at jbenjamin@investmentnews.com