Key Takeaways: ICSC Las Vegas & ULI NYC Spring Meeting

June 13, 2024 • This spring, I attended the ULI Spring Meeting in my hometown, New York City, and ICSC’s annual Las Vegas convention. At both events, there was a general sense of relief, perhaps even optimism, reflecting the real estate industry’s slow but steady return to normalcy, albeit a new normal, after the seemingly never-ending volatility of the past five years.

Here’s a synopsis of these two conferences and the takeaways that I found meaningful.

ICSC Las Vegas: Retail is a Tale of Two Cities

Retail leasing is on fire but transactions (acquisitions and financings) are at a standstill, is how one shopping center owner characterized the current state of the national retail real estate market during ICSC Las Vegas.

Retailers Get Creative

Retail landlords are now in the driver’s seat as strong retail leasing velocity and low retail vacancy rates characterize most desirable U.S. retail markets. While this is a testament to the overall strength of retail as an asset class, it presents challenges for expanding retailers, including Burlington, McDonalds, and Starbucks. A willingness to pay premium rents for premier locations is often not enough to secure those prime spots, so retailers are employing new strategies to create expansion opportunities. For example, McDonalds used AI to identify 3,000 market gaps and now, with people in place in those locations, is working with landlords to create expansion opportunities.

Retail Investment Opportunities Languish

In spite of retail’s newfound status as a favored sector of the real estate market where “investors are going from retail curious to retail serious” according to JLL’s Chris Angelone, sale transactions are few and far between. High interest rates and tough underwriting requirements are keeping buyers and sellers apart and in some cases where the cost of capital exceeds rent growth, properties are losing value.

Notwithstanding the current standstill, retail transactional activity is poised to increase as investors prepare to reallocate capital from other property sectors into retail with an increased appetite for risk. Of particular interest are value-add opportunities: centers with good fundamentals that have been mismanaged with undesirable tenants and high vacancy rates.

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ULI Spring Meeting: Stay Alive Until ’25*

The Economic Forecast is Positive, But...

ULI’s Real Estate Economic Forecast as presented at the Spring Meeting in NYC projects an optimistic future for the U.S. economy and for most real estate markets, especially as we head into 2025 and 2026. While transactional volume remains low across property types, a re-evaluation of property values and resulting market-based pricing are expected to facilitate increased activity, from a low of $378B in 2023 to $610B in 2026. According to the Forecast, overall property valuations will reach their lowest point in 2024, after decreasing another 5% before turning the corner with gains of 2% in 2025 and 4% in 2026. We may be about to witness the best buying opportunities since the early 1990s, despite the challenge of negative leverage.

Retail Leads the Pack

The Forecast projects that retail properties will generate the strongest returns over the three-year forecast period, averaging 4.6% annually. Multi-family and industrial, although currently experiencing some softening as a result of new supply, are projected to continue to generate positive returns of 3.2% and 3.3% respectively. Office projections are less vibrant with 1.9% average annual returns until 2026 and vacancy rates of 20% in some markets. Office rents are expected to decrease annually at a rate of 1.1% for the next three years.

* Link for the entire ULI article: Stay Alive Until ’25: ULI’s Real Estate Economic Forecast Indicates Positive Trends Heading Into 2024