LONG BEACH–‘Cautious optimism’ for 2016 was the consensus among panelists at the 2016 Industry Forecast luncheon hosted by the Association of Corporate Real Estate Executives (ACRE) of Southern California. Nearly 200 attendees gathered on Tuesday, Feb. 9, at the Long Beach Grand to gather insight on the Southern California retail real estate market for the upcoming year.
Moderated by Ryan Garcia of Strategic Development Advisors, panelists offered an investment, leasing and debt perspective on the marketplace. Panelists included John Chun, Director at HFF; Kostas Kavayiotidis, Vice President of Pacific Southwest Realty Services; Carlos Lopez, President of Hanley Investment Urban Retail Advisors; Dave O’Connell, Centers Business Management (CBM) Director of Commercial Leasing and Investments; and Matt Hammond, Coreland Companies Director of Retail Brokerage.
Garcia kicked-off the discussion by asking the panel to identify what will be the biggest disruption in 2016. All shared a generally positive outlook, however, Lopez set the tone by pointing to the stock market volatility and sharing that his clients are approaching investment with ‘cautious optimism.’
“There is a perception of caution that has entered the realm. Clients sharing that they just want to be cautious, so we expect there to be a bit of a cap rate upward shift to deal with this,” shared Lopez. “However, we believe that 2016 is going to be a very positive year… it is still a good time to be positioning your asset to sell it.”
“From a leasing perspective, we are enjoying having multiple offers on Class A and B spaces,” commented Hammond. “However, there is just not a lot of low-hanging fruit anymore. Great locations have been leased and tenants are being a lot more selective about settling for a secondary location.
“Landlords have to get creative and create opportunity, which often means sitting down to discuss strategic moves or investments to enhance the tenant mix.”
When asked to identify a major difference today, as opposed to pre-recession years, O’Connell commented: “Tenants have a lot more data now than they used to have. They better understand their customer, and as a result they can be more selective with new sites.”
Hammond added that a major difference is that today’s tenants are entering deals with strong financials and good equity positioning. As opposed to the height of the market pre-recessionary period when many deals were negotiated with highly-leveraged tenants that could not sustain.
In regards to debt markets, Chun and Kavayiotidis agreed that the available debt is well-priced and allowing for long-term placement of very attractive rates. Owners have the ability to refinance and allocate funds to reinvest in their existing inventory or continue acquiring new properties.
Panelists closed by offering predictions for the coming year.
“Investors are actively seeking new assets to acquire for long-term holds or repositioning opportunities so we expect a high volume of transactions,” said Chun. “But we do expect to see more volatility in the second half of the year.”
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ACRE is a non-profit association that provides a forum for the exchange of ideas and networking between commercial real estate professionals. Panel discussions and special events are held throughout the year bringing together developers, tenants, brokers, lenders, consultants and other related professionals involved in the Southern California commercial real estate industry.