Originally posted – Nov issue/2012
An Interview with International Council of Shopping Centers Vice President Michael Niemira
Michael P. Niemira is the staff vice president, chief economist and director of research for the International Council of Shopping Centers. As the director of research, he is responsible for the overall selection, design, implementation and dissemination of all research projects undertaken worldwide by the ICSC. These projects are considered to be at the forefront of the recognized research in the field. He also oversees the collection and maintenance of ICSC e-data, the main statistical database for the industry, and the e-library, the largest online collection of shopping center related materials in the world. Mr. Niemira produces the ICSC – Goldman Sachs Weekly Chain Store Sales Snapshot – a retail sales monitor – as well as the monthly report, Chain Store Sales Trends.
Before joining ICSC, he held the position of vice president and senior economist for the Bank of Tokyo-Mitsubishi, Ltd. in New York. Previously, he worked for PaineWebber, Chemical Bank and Merrill Lynch. Over the years, he has been an adjunct instructor at New York University’s Stern Graduate School of Business and at the New York Institute of Finance.
Mr. Niemira is on advisory panels for the Conference Board and the Institute for Supply Management. He has co-authored two books: “Forecasting Financial and Economic Cycles” and “Trading the Fundamentals,” and contributes numerous articles to books, journals and magazines.
As we head into 2013, what’s the overall outlook for the shopping center industry?
There are a lot of different things playing out, and it depends on what sector of the industry you’re looking at.
For example, regional malls have been performing better lately, and they’re likely to continue to do better. However, the strip centers – where a lot of coin laundries are located – have been struggling.
Of course, it also somewhat depends on what happens with Congress. We’ll assume for our forecast that Congress will come up with some plan that will move forward a lot of the big hit to economy – the $500 billion in tax hikes and spending cuts set to hit in January. I suppose there will be other hits to taxes and spending that in different ways will keep growth more modest in 2013.
To put it in context, we’re looking for about 1.5 percent growth for next year. With the idea that a lot of the drag will show up next year, probably along with some of the lag effects of the European recession.
That’s the backdrop. But when you look specifically at the shopping center industry, there are some good signs and some more worrisome signs.
We have a quarterly survey, which goes back to 2006; it’s an evaluation by members of the local markets they’re in. And, when you really get down to the local markets, our members are saying that things are looking a little bit better.
However, we also ask them questions on the financial side, and there seems to be some deterioration that they see on the credit side and with regard to the availability of credit. It’s not much, but a little bit more than we’ve seen in a number of quarters.
Again this is a very mixed kind of environment. So, what are the takeaways?
From our perspective, if growth continues but quite modestly, that will presumably suggest consumer spending will continue to grow – but probably modestly. The overall economy is the driver here.
On the supply side for our industry, we’re not seeing much. Consequently, shopping center owners are ultimately getting a better rent. That’s better news for our industry, but maybe not for the tenants leasing space in those centers.
So, certainly we have these mixed signals. Some things look better. Some look worse. The demand side is probably a bit more on the more negative side, while the supply side is on the stronger side.
Where do shopping center vacancy rates currently stand?
I tend to focus on the data from NCREIF, or the National Council of Real Estate Investment Fiduciaries. They benchmark the industry performance – revenue, expenses and also occupancy.
The overall industry vacancy is roughly around 10 percent. It has not gone down much, but it has not really gone up either. It has hung around that figure for the last year and a half.
It’s been slow moving and, because there is very limited new supply coming to the market, it’s likely to edge lower – but slowly. Certainly, from the interest rate side, things are fine. So the environment is not bad for small business on that front.
Of course, the strip centers, which typically feature the most laundromats, are the ones that tend to have a higher vacancy rate.
Is the tenant mix within shopping centers shifting?
It is. Again, because you have a wide range from the malls to the strip centers, there are a lot of variables. But, frankly, wherever the industry is headed, the strip center is likely to be there first.
And that goes to the tenant mix issue, too. Right now, if you look at the data, approximately 40 percent of strip centers are not “retail” or “restaurant.” They are the “other” businesses. However, in a mall, that figure is about 17 percent.
Increasingly, we’re seeing the big retailers thinking smaller is better and online is now a bigger part of their equation, so they don’t need at much space. What that means is you’re going to be seeing other types of tenants, more services, more entertainment, and even government offices and colleges.
What percentage of shopping centers feature laundromats?
In the smaller, neighborhood centers, which is most likely where you will find coin laundries, the average gross leasable area, or GLA, is 2,000 square feet for a laundromat or laundry services. That’s about 3 percent of the space of neighborhood centers.
Of course, this is not representative of the industry. As you get up into the bigger malls, it gets lost and it’s probably very small.
Are laundromats considered good tenants by the shopping center industry?
It’s one of those businesses that’s not very glamorous, so you don’t hear much talk about them. However, to the extent that a laundromat is a necessary and essential type of service for the consumer, which draws traffic to a center – it is probably one of those businesses you look for if you own a neighborhood center.
But, clearly is depends on the characteristics of the trade area.
In the past, in certain markets, potential laundry owners have had difficulty convincing some shopping center owners that a coin laundry would be a positive addition to their centers, as well as to the surrounding communities. What is the ICSC’s perspective?
I have not heard anyone speak to that specific point. However, in this day and age, leasing agents probably would be happy with any tenant. And, as I previously mentioned, to the extent that a self-service laundry is a driver of traffic, it is something that is and should be desired.
Which portions of the country boast the strongest shopping center markets?
Overall, the number of new centers being built has drastically slowed.
However, just the other day, the CEO of Macerich and the CEO of General Growth Properties were talking about what they were seeing, and their view was that the recovery seemed to be first on the coasts, but now it seemed to them that it’s also spreading more into the mid-section of the country. And that’s a changing dynamic.
It seems to speak to a stronger manufacturing base in that portion of the country. We’ve seen some improvement in manufacturing and ultimately that is sort of rippling through effect.
Overall, what trends are impacting the shopping center industry and what statistics should laundry owners be aware of as we head into next year?
The long-term concern has always been that the strip centers tend to be more locally managed – and probably less efficiently managed. So, over time, the trend is likely to be more consolidation of the strip centers, which is where laundromats tend to be located.
I’m not sure we’ve seen a lot of this yet, but we’ve seen some. That is something that may be a longer term trend; again, with the idea that it will enable the centers to be managed more efficiently.
Statistically, there are a lot of little statistics worth watching for small-business owners, such as laundry operators. From my standpoint, I would suggest every retailer, every tenant and every landlord keep an eye on the key economic indicators – with employment being the key story right now. In my mind, that employment data is number one.
JEN: BELOW ARE PULL QUOTES AND A SIDEBAR TO GO WITH THIS INTERVIEW…
Pull Quotes
There are approximately 109,500 shopping centers in the United States, ranging in size from the small convenience centers to the large super-regional malls.
— CoStar
U.S. convenience-oriented neighborhood centers – which average in size by approximately 71,900 – account for the largest share of the industry by GLA (31.1 percent) with an aggregate center count of approximately 32,000 centers of that type.
— CoStar, ICSC Research
In the United States, malls account for 17.9 percent of all shopping-center space (gross leasable area).
— CoStar, ICSC Research
Consumer spending accounts for approximately 70 percent of U.S. gross domestic product and is the primary driver of the country’s economic wellbeing.
— U.S. Bureau of Economic Analysis
U.S. shopping-center retail sales total more than $2.26 trillion, accounting for more than half of all retail sales.
— ICSC Research
Sidebar
Shopping Center Demand Slows
Demand for space in U.S. shopping centers slowed in the third quarter as economic growth was reduced by stalled consumer spending, according to Reis Inc.
Occupancies at neighborhood and community shopping centers rose by a net 1.46 million square feet, the smallest quarterly increase in a year, according to the New York-based real estate research firm. The gain in so-called net absorptions compared with an increase of 2.18 million square feet in the previous three months, and was the smallest since 840,000 square feet were added in the third quarter of 2011.
Retail landlords are being hurt by a standstill in consumer spending, which accounts for about 70 percent of the economy. It rose 0.1 percent in August, after adjusting for inflation, following a 0.4 percent gain in July, according to the Commerce Department. U.S. gross domestic product grew 1.3 percent in the second quarter, half the average rate in the past 20 years.
“People aren’t really spending a lot of money unless they have to,” Ryan Severino, a Reis senior economist, said in a recent Businessweek report. “You’re still seeing kind of a tug of war between store openings and store closings right now.”
The vacancy rate at neighborhood and community retail centers was 10.8 percent for a second straight quarter. It was 11 percent in the third quarter of 2011, matching a 12-year high reached at the end of 2010. About 569,000 square feet of new space came online in the three months ended Sept. 30, the second-lowest quarterly figure in Reis records dating to 1999.
Asking rents rose to an average of $19.05 a square foot from $18.97 a year earlier, Reis said. Effective rents, or what’s paid after any landlord discounts, averaged $16.57 a square foot, up from $16.49 a year earlier.
At regional malls, which typically include department stores and are larger than neighborhood and community centers, vacancies fell to 8.7 percent in the third quarter from 9.4 percent a year earlier, and asking rents rose to $39.24 a square foot from $38.81.
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