Household Formation, Confident Consumers Powering Retail Sales Growth

 

 

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Research Brief
April 2017
RETAIL SALES
Developing Trends
As consumers steer more spending to online portals, two retail giants are forging different paths for growth. Wal-Mart has initiated a program to provide discounts for online shoppers seeking to pick up merchandise in stores. Meanwhile, Amazon announced a new grocery concept for shoppers to pick up items at new brick-and-mortar locations as the company looks to expand into traditional retail spaces. Amazon will open two stores in Seattle to test the concept before a further rollout to additional locations. E-commerce sales soared 11.9 percent over the past year, the strongest growth of any core retail sales category.
In an effort to capture more sales from the emerging health and beauty megatrend, Walgreens recently announced that it would roll out new store formats and hire beauty consultants in more than 1,000 additional stores this year. The move follows a trend of retailers providing services in addition to traditional products. Health and personal care sales vaulted 5.7 percent over the past year.
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Household Formation, Confident Consumers
Powering
Retail Sales Growth
Retail sales remained elevated in March as core retail sales rose 4.1 percent over the past year. Emerging wage growth, with average hourly earnings up 2.7 percent over the past year, coupled with consumer confidence at the highest level in 16 years form a positive outlook for the year ahead. Demand for retail properties pushed the national vacancy rate to 5.5 percent in 2016. Household formation is triggering significant demand for building supplies, with sales up 6.3 percent over the past year. The highest pace of multifamily completions in more than 30 years at 370,000 units will push the residential construction annual run rate to more than 1.2 million units this year as millennials continue to form households. Multifamily conditions remain tight, with vacancy at 4.6 percent.
4.1% Core Retail Sales
Y-O-Y*
2.7% Average Hourly Earnings Y-O-Y*
* Through March
** Forecast
Sources: Marcus & Millichap Research Services; U.S. Census Bureau; National Retail Federation
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

New-Home Sales Building Momentum As Entry-Level Buyers Re-engage in Homebuying

 

 

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Research Brief
April 2017
HOUSING
Developing Trends
The annual uptick in existing-home sales was driven by trading among higher-end homes as the inventory of affordable listings remained tight. The slowdown in sales of lower-cost properties presents challenges to first-time homebuyers, channeling many to new builds. Though developers face cost issues in building entry-level housing, new product is quickly sold.
Current demographics indicate that the U.S. should be producing between 1.2 million and 1.3 million households per year. However, a tight residential market and a lagging pace of single-family development have resulted in a housing shortage. Though apartment deliveries will reach peak levels in 2017, a national housing deficit persists, restraining household formation. If single-family construction can rebound and stimulate the formation of these pent-up households, positive effects across an array of industries would ripple throughout the economy.
U.S. apartment vacancy reached 4.6 percent in the first quarter as tremendous housing demand kept absorption in alignment with increased construction.
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New-Home Sales Building Momentum
As Entry-Level Buyers Re-engage in Homebuying
Wage growth, rising consumer confidence and a pickup in entry-level buying contributed to a 12.8 percent annual gain in new-home sales in February. Purchases of lower-priced properties drove the overall increase, signaling the gradual return of first-time homebuyers. Demand exists for affordable product; however, increasingly high labor and land costs make entry-level home development difficult to pencil out in many major metros. Healthy housing demand coupled with limited for-sale inventory drove the median sales price of existing homes up by 7.7 percent over the last year through February, the strongest gain in 13 months. Aggressive price appreciation and a shortage of affordable listings have restrained sales activity. Rising prices will act as a barrier to homeownership, keeping many households in rentals and sustaining underlying apartment demand.
$229,900 Median price of existing single-family home in February 2017 3.8 Months of supply at current sales pace in February 2017
* Through 1Q17
** Through February 2017
Sources: Marcus & Millichap Research Services; U.S. Census Bureau; MPF Research; National Association of Realtors; National Association of Home Builders
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

Fed Raises Rates Toward Normalization; Rising Confidence in Expansion is Key

 

 

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Research Brief
March 2017
FEDERAL RESERVE
Developing Trends
At least two more rate increases were signaled by the Fed for the remainder of 2017. Strong confidence combined with rising fiscal stimulus and tax cuts, however, could spark faster economic expansion and cause the Fed to become more aggressive with rate hikes in an effort to maintain balanced growth.
The Federal Reserve must focus on the delicate balance of maintaining growth without allowing inflation to rise too fast. However, rising inflation does signal stronger economic growth and boosts the appeal of commercial real estate due to its inflation-hedge characteristics.
Though yield spreads will likely compress as the cost of capital rises, cap rates have not historically moved in tandem with Treasury rates. Declining vacancy combined with rent growth will underpin continued performance gains, sustaining a positive long-term investment outlook. Combined with market liquidity and strong capital flows to commercial real estate, valuations remain supported.
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Fed Rate Increase Offers Mixed Results
KEY OBSERVATIONS:
Fed action signals their confidence in the economy and staves off future inflation risk.
Rising interest rates are reinforcing investor caution and slowing investment real estate transaction activity.
As clarity on tax reform, regulatory reform and fiscal policy emerges, confidence should return, lifting sales activity.
A positive economic outlook motivated the Federal Reserve to raise its benchmark rate by 25 basis points. The Fed’s confidence has improved significantly over the past 12 months given the tightened labor market and steady retail sales growth. Rising Fed Funds do not necessarily align with Treasury rate movement, thus the Fed’s action will not cause a dramatic change in the 10-year rate. The jump in long-term interest rates at the end of 2016 caused buyers to recalibrate their assumptions, widening the bid/ask spread and slowing commercial real estate transactions. Investors have begun to factor the rising interest rate environment into underwriting but uncertainty regarding fiscal and tax policies will continue to restrain sales until greater clarity emerges.
235,000 Monthly Job Gain February 2017 2.8% Wage Growth Through February 2017 Y-O-Y
* Forecast Sources: Marcus & Millichap Research
Services; BLS; Federal Reserve Board
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

Retail Sales Boosted by Three Significant Trends; Some Retail Components Falling Behind

 

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Research Brief
March 2017
RETAIL SALES
Developing Trends
Utilizing omnichannel approaches, both Ulta Beauty and Dick’s Sporting Goods recently announced strong sales growth and expansions. Ulta Beauty is planning 100 new locations over the coming year, highlighting strong demand at health and personal care outlets. Category sales rose 6.1 percent over the past year. Meanwhile, Dick’s Sporting Goods announced plans for 43 new stores this year, along with nine Golf Galaxy and eight Field & Stream locations. Sales in the sporting goods category rose 4.6 percent during the last year.
Grocery chains, anchors in local neighborhood centers, are aiming to open more than 280 locations this year, indicating vigorous grocery demand in local communities. As a result, retail vacancy has fallen to the lowest level in 16 years, ending 2016 at 5.5 percent. Vacancy is forecast to fall an additional 40 basis points this year. Midwestern grocer Meijer is also experimenting with an omnichannel approach, offering home delivery in six states to bolster sales amid competition from e-commerce.
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Retail Sales Boosted by Three Significant Trends;
Some Retail Components Falling Behind
Retail sales remained elevated in February, with core retail sales vaulting 4.4 percent over the past year, driven by three significant trends. Consistent job growth has added 2.4 million workers over the past year, wage growth is averaging 2.3 percent annually and consumer confidence remains near decade highs, fostering a strong retail consumption environment that will support retail center performance. Sturdy retail gains outshined weakness in the department and electronic store segments, where sales fell 5.6 percent and 6.0 percent over the past year, respectively. Weakness among mall-based department stores led to store closures from Sears, Macy’s and J.C. Penney, along with the bankruptcy of Hhgregg. These headlines obscure positive performance in local community retail establishments.
4.4% Core Retail Sales
Y-O-Y*
2.8% Inflation/CPI
Y-O-Y*
* Through January Sources: Marcus & Millichap Research Services; U.S. Census Bureau; National Retail Federation; University of Michigan Consumer Confidence Index
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250