The Five Retail Trends to Watch in 2015 January 14, 2015
U.S. ECONOMIC TRENDS
Inflation Adjusted Crude Oil Prices Fall Below Long-Term Average Price per Barrel (Nov. 2014 Dollars) $160 $120 $80 $40 $0 Long-Term Average: $53.89 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015* * Through January 11 Oil prices for West Texas Intermediate crude Sources: Marcus & Millichap Research Services, Energy Information Administration, BLS
U.S. GDP Growth Accelerates Numerous Drivers in Unison Annualized Quarterly Percent Change Industrial Starts (in millions) 10% 5% 0% -5% -10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* * Forecast Sources: Marcus & Millichap Research Services, BEA
Confidence Rising Will Support Economic Momentum Consumer Confidence Small Business Optimism Consumer Confidence Index 160 120 80 40 0 Budget Set Until Sept 2015 Debt Ceiling Locked In Until Mar 2015 120 110 100 90 80 Small Business Optimism Index 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* * Through November Index: December 2002 = 100 Sources: Marcus & Millichap Research Services, The Conference Board, NFIB
Employment Gains Accelerating Likely to Lift Wage Growth in 2015 Quarterly Job Growth (Millions) 0.9 0.0-0.9-1.8-2.7-8.7 Million +8.2 Million +10.7 Million* 2015 Forecast: 3.1 Million - 3.5 Million 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* * Forecast Sources: Marcus & Millichap Research Services, BLS
Full Jobs Recovery But Not For All Metros Absolute Change Jan. 2008-Nov. 2014 Top 10 Metros Absolute Change Percent Change 12 Mo s Change* Bottom 10 Metros Absolute Change Percent Change 12 Mo s Change* Houston 355,000 13.7% 126,700 New York 292,900 7.7% 80,200 Dallas-Ft. Worth 261,000 8.8% 114,600 Austin 132,400 17.1% 27,600 San Francisco 107,800 10.6% 38,100 Washington, D.C. 100,900 3.4% 15,100 Boston 95,900 3.9% 46,900 San Antonio 91,300 10.8% 27,900 Denver 85,400 6.8% 34,700 San Jose 85,000 9.1% 37,400 U.S. Total 1,730,000 1.3% 2,784,000 Chicago -66,700-1.5% 33,400 Northern NJ -64,200-3.3% 8,200 Detroit -63,700-3.3% 14,100 Philadelphia -61,700-2.2% -2,000 Las Vegas -49,700-5.3% 22,400 St. Louis -36,600-2.7% 16,100 Phoenix -34,300-1.8% 53,100 Cleveland -31,500-2.9% 12,400 Orange County -20,500-1.4% 32,500 Sacramento -15,600-1.7% 21,100 U.S. Total 1,730,000 1.3% 2,784,000 * Trailing 12-month change through November Sources: Marcus & Millichap Research Services, BLS
U.S. ECONOMIC TRENDS
Retail Sector
U.S. Retail Sales Maintain Momentum Growth Lifts Economy 12% Total Retail Sales $350 Monthly Retail Sales Excl. Auto and Gas Year-Over-Year Change 6% 0% -6% 20-Year Average: 4.3% Retail Sales ($ Bil.) $310 $270 $230 $869/person $983/person +19% -12% 07 08 Recession 09 10 11 12 13 14* $190 02 04 06 08 10 12 14* * Through November Sources: Marcus & Millichap Research Services, U.S. Census Bureau
Post-Recession Retail Sales by Store Type; ecommerce Gaining Share of Retail Sales Post-Recession Growth Change from Dec. 2008 to November 2014 Nonstore Retailers Restaurants/Bars 29.8% 64.5% Apparel 27.4% Health/Personal 23.5% Building Materials 21.3% Grocery 20.1% Miscellaneous 16.0% General Merchandise 14.4% Electronic Shopping as % of Retail Sales 12.0% Percent of Sales 9.5% 7.0% 4.5% Sporting Goods 13.2% Furniture & Electronics 12.3% 2.0% 0% 18% 36% 54% 72% 1993 1996 1999 2002 2005 2008 2011 2014* * Through October Excludes auto & gas sales Sources: Marcus & Millichap Research Services, U.S. Census Bureau
Top U.S. Retailers Expanding in 2015 Top 15 Retailers Expanding Category Current Stores 2015 Store Openings* Subway Fast Food 38,317 2,500 Dollar General Variety Store 10,291 650 Five Guys Restaurant 1,350 600 T-Mobile Cellular / Wireless 2,200 400 KFC Fast Food 5,550 350 Pizza Hut Restaurant 7,850 350 7-Eleven Convenience Store 50,550 300 Long John Silver's Fast Food 1,576 300 Dunkin' Donuts Food or Beverage Specialty 10,280 280 Burger King Fast Food 7,850 250 Baskin Robins Food or Beverage Specialty 2,900 200 Great Clips Salon / Spa 3,500 200 Jimmy John's Fast Food 1,350 200 Mail Box Stores Printing / Copies 2,200 200 Starbucks Coffee Shop 18,200 200 * Estimate Sources: Marcus & Millichap Research Services, RBC Capital Markets
National Retail Metro Ranking by 2015 Retail Sales Growth Top 10 Markets Retail Sales ($ Billions)* Y-O-Y % Change Salt Lake City $48.2 7.0% Charlotte $35.4 6.9% Orlando $49.5 6.6% New York $140.8 6.5% Austin $59.9 6.5% Palm Beach $29.8 6.3% Ft. Lauderdale $41.2 6.1% Dallas-Ft. Worth $121.8 6.0% Boston $95.8 6.0% Atlanta $95.5 5.9% U.S. Total $5,524.1 4.8% Bottom 10 Markets Retail Sales ($ Billions)* Y-O-Y % Change Chicago $166.2 3.4% Philadelphia $114.4 3.9% Cleveland $37.7 3.9% Detroit $68.2 4.0% Milwaukee $25.6 4.2% Minneapolis $61.7 4.3% Northern NJ $64.8 4.3% Oakland $43.0 4.3% Los Angeles $163.3 4.5% Columbus $34.1 4.6% U.S. Total $5,524.1 4.8% * Forecast Sources: Marcus & Millichap Research Services, U.S. Census Bureau, Moody s Analytics
Retail Sector
Capital Markets
10-Year Treasury Hovering Near 30-Year Trough Rate 16% 12% 8% 4% 0% 1984 1985 1986 30-Year High: 13.56% * Through January 13 Sources: Marcus & Millichap Research Services, Federal Reserve 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 30-Year Average: 5.8% 30-Year Low: 1.53% 2014 2015*
Core Inflation vs. 10-Year Treasury 4% Core Inflation 10-Year Avg. Core Inflation 10-Year Treasury 10-Year Avg. 10-Year Treasury 3.35% 3% Rate 2% 1.93% 1% 40-Year Average Core Inflation: 4.07% 10-Year Treasury: 6.78% 10-Year Average Core Inflation: 1.93% 0% 10-Year Treasury: 3.35% 2010 2011 2012 2013 2014 2015* * Through January 13 Sources: Marcus & Millichap Research Services, Federal Reserve, BLS
U.S. Commercial Mortgage Backed Securities (CMBS) Issuance $250 CMBS Issuance (Bil.) $200 $150 $100 $50 $0 1996 1997 * Forecast Sources: Marcus & Millichap Research Services, Trepp 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Retail Lender Composition by Percent of Total Dollar Volume Percent of Total Dollar Volume 100% 75% 50% 25% 0% 23% 29% 17% 8% 19% 11% 9% 10% 12% 12% 12% 15% 27% 14% 29% 8% 11% 8% 9% 44% 9% 7% 9% 42% 23% 26% 21% 15% 9% 5% 3% 3% 4% 4% 3% 3% 1% 1% 1% 1% 2% 2% 4% 46% 13% 19% 2008 2009 2010 2011 2012 2013 2014* 46% 5% 46% National Bank International Bank Regional/Local Bank CMBS Insurance Financial Private/Other * Estimate Includes sales of properties $2.5 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics
Capital Markets
National Retail Overview
Store-Based Retail Sales Growth Supports Rising Retail Space Absorption Quarterly Net Absorption (Mil. Sq. Ft.) 60 45 30 15 0 2002 2003 2004 Net Absorption** 2005 2006 2007 2008 Store-Based Retail Sales 3.3% 2009 2010 2011 2012 2013 2014* 18% 12% 6% 0% -6% Y-O-Y Percent Change * Preliminary estimate for 4Q ** Trailing 12-month average Store-based core retail sales excludes gas stations, auto dealers, grocery stores, and non-store retailers Sources: Marcus & Millichap Research Services, CoStar Group, Inc., U.S. Census Bureau
Tame Construction Supports Steady Tightening of Vacancies Completions Vacancy Rate 200 9% Completions (Mil. of Sq. Ft.) 150 100 50 8% 7% 6% Average Vacancy Rate 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14* 15** 5% * Estimate ** Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
National Retail Metro Ranking by Vacancy Rate Top 10 Markets 2015* Vacancy Y-O-Y Bps Chg. San Francisco 2.2% -20 San Jose 3.3% -70 San Diego 3.5% -60 Oakland 3.7% -60 New York 3.9% -20 Miami 4.0% -20 Boston 4.1% 10 Salt Lake City 4.3% -30 Orange County 4.4% -40 Los Angeles 4.5% -40 U.S. Average 6.0% -60 Bottom 10 Markets 2015* Vacancy Y-O-Y Bps Chg. Las Vegas 9.7% -70 Phoenix 9.4% -100 Cleveland 9.2% -40 Detroit 9.1% -70 Sacramento 8.6% -120 Inland Empire 8.6% -30 Atlanta 8.2% -100 St. Louis 7.9% -50 Chicago 7.8% -90 Kansas City 7.8% -60 U.S. Average 6.0% -60 * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
National Retail Overview
National Sales Trend Overview
Total Transactions (000s) 10.0 7.5 5.0 2.5 0.0 U.S. Retail Investment Trends Transaction Activity by Price Tranche $1M-$10M $10M-$20M $20M+ 02 03 04 05 06 07 08 09 10 11 12 13 Single-Tenant +32% * Trailing 12-months through 3Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics 14* Total Transactions (000s) 8 6 4 02 03 04 05 06 07 08 09 10 11 12 13 2 0 Multi-Tenant $1M-$10M $10M-$20M $20M+ -7% 14*
National Single- and Multi-Tenant Retail Price and Cap Rates Single-Tenant Multi-Tenant $250 Average Price Cap Rate 10% $200 Average Price Cap Rate 10% Average Price Per Square Foot $200 $150 $100 9% 8% 7% Average Cap Rate Average Price Per Square Foot $150 $100 $50 9% 8% 7% Average Cap Rate $50 02 04 06 08 10 12 14* 6% $0 02 04 06 08 10 12 14* 6% * Trailing 12-months through 3Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
Re-Pricing of Risk by Quality Reflected in Retail Cap Rate Trends by Market Type 10% Primary Secondary Tertiary Average Cap Rate 9% 8% 7% 40 bps 140 bps 6% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* * Trailing 12-months through 3Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
Retail Cap Rate Trends Average Cap Rates vs. 10-Year Treasury Average Rate 12% 9% 6% 3% 450 bps Single-Tenant Cap Rate 10-Year Treasury Rate 440 bps 10-Yr Treasury Long-Term Avg. 450 bps Cap Rate Long-Term Avg. 210 bps 560 bps 420 bps Average Rate 12% 9% 6% 3% 520 bps Multi-Tenant Cap Rate 10-Year Treasury Rate 550 bps 10-Yr Treasury Long-Term Avg. 560 bps 250 bps Cap Rate Long-Term Avg. 640 bps 530 bps 0% 0% 1993 1996 1999 2002 2005 2008 2011 2014* 1993 1996 1999 2002 2005 2008 2011 2014* * Through December 31 Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
National Sales Trend Overview
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The Five Retail Trends to Watch in 2015 January 14, 2015