Insights on the retail industry 2022 foward
Many KPIs come from the retail showroom floor at modern indoor shooting ranges. Not just from firearms training courses and range fees like daily passes and monthly membership revenue.
The following are takeaways from a recent CBRE Retail Commercial Real Estate Seminar all retailers, including FFL dealers / range owner-operators and shooting range investors may find useful:
Inflation comparison to the 1970's is not totally fair because we didn't have the globalization we have today.
Forward IRR's are probably better than most other sectors of commercial real estate.
Obstacles to healthy functioning retail: Labor force - job quits and openings are at all time highs. Recently the US National Whitewater Center with many part time employees increased their entry level hourly rate from $9.25 to $15.00 per hour.
Inventory to sales ratio - supply chain has not been solved.
Consumer sentiment - up in April slightly but at all time lows. Global politics and COVID are to blame but sales continue on strong with gains on year over year same store sales.
Early cycle fundamentals - lack of new retail square footage supply reflects declining demand. Supply is constrained - developers have not built much in the past 10 years thus there is not a lot of space available this year or next. Construction costs don't either. Residential development is strong so supply of sq. ft. will remain tight while construction resources are there.
Middle ground stores may be coming back as household spending tightens. Luxury brands may not do as well as they have over the past decade as a result.
Tenants can't afford the TI at new spaces so they are somewhat forced to stay where they are and negotiate the best rate possible if they don't have a built in renewal.
The effects of inflation are evident on supply of goods, housing, and labor.
Goods pricing is peaking in mid 2022.
Gov. stimulus from COVID is going to wear off soon.
Further rises in inflation - could have an impact by slowing the economy. If it continues to increase then interest rates will go up further. This is still a long way off. Fed Chairman says he has many options to help ensure a soft landing to the trends in the economy. They view this inflation as temporary for now, it lacks an immediate threat of enduring and becoming a recession.
Bright sectors: vacation, food and beverage, and experiential.
Bidding - Open air retail - no pricing changes for Class A. Cost of debt for Class B and C not changing much because returns are steady / there's durability of cash flow and thus in cap rates remaining steady too. Cap rates come about from Treasury coefficient and rental rates. Only one closed air mall under construction in the US!
There's strong institutional interest in retail - because they are less debt sensitive than private buyers. Sales are based on a % of replacement cost.
Availability in retail square footage is at a 10year low.
Best type of retail during inflation: Open air grocery anchor has been very adaptive to omni channel retail with quick in and out. More mobility than ever. Convenience is key including curbside pickup type features.
Currently there's a record amount of equity in the world which, with low interest rates, relative to the amount of investment opportunities due to +45year old demographic is substantial. We have a glut of capital. Will continue into the mid 2030's. Helps keep cap rates low.
Supply Chain - already healing but lockdowns in China due to COVID and Ukraine war slow it, but globalization will create some relief. Construction pricing has peaked and will ease slowly over the next 24 months.