The good, the bad and the stable

If you are partial to a hot commercial real estate market, go east. According to a recent article published on GharProperty, India’s retail real estate market is in full swing, boosted by growing employment, increased consumption and favourable government policies. The article describes a “revolution” in consumer shopping patterns, fuelled by a growing number of shopping centres and multiplexes that combine dining, shopping and entertainment. Retail is getting organised and adapting to take full advantage of a surge in consumer demand, with a resulting increase in service-sector jobs in urban areas.

The situation is not as rosy for commercial real estate in the United Kingdom, however. According to an article published in The Telegraph last week, an estimated 1 in 5 shopping centres risk defaulting on loans. Prior to the recession, investors flooded the market, inflating the value of real estate in this sector. Now, forced to face the effects of the recession – low consumer confidence and spending – retail property owners are struggling to keep up with loan payments.

The UK currently has over 20 secondary shopping centres on the market, worth approximately £1bn. Property investors fear that in the current economic climate, demand for such assets is insufficient. The British Council of Shopping Centres  is now calling for stricter standards and greater transparency in valuing centres.

Market commentators are slightly more optimistic across the Atlantic, where David Bodamer of Retail Traffic reports that the US retail market is showing increasing signs of stability. This is a welcome development following near-steady decline in retail property rents since mid-2008. The CoStar Group Retail Report estimated a 7.1% retail vacancy rate for the first quarter of 2011. This rate remains unchanged from the previous quarter and slightly lower than the second and third quarters of 2010. The vacancy rate breakdown by sector is as follows:

  • General retail segment              4.9%
  • Malls, power centres                6.8%
  • Specialty centres                     7.4%
  • Shopping centres                    10.8%

The jury’s still out on whether this uptick will continue. CoStar Senior Real Estate Strategist Chris Macke says that the fate of the market depends upon US fuel prices and private sector employment, both of which affect consumer spending.

Top image credit : Photobank gallery

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