Retail Market Outlook
Nationwide rents and occupancy levels continued to increase, extending the seven year streak of growth we have seen
and while these levels are getting close to pre-recession highs, the run-up has been much more measured and the
pipeline of new product remains limited. Capital Markets activity has continued to decline in the retail sector, with
almost 50% of the volume in 2017 and 2018 coming from corporate acquisitions and mergers rather than asset sales.
The Puerto Rico market experienced increased vacancy rates beginning in 2010 and has continued a slow erosion.
Leasing activity has picked up since Hurricane Maria but not to prerecession levels with most activity coming
from local version national or international retailers. Class A and B retail has maintained a relatively steady rate of
occupancy of approximately 90-92%. Approximately 850,000 SF of new retail came on line in the last six years with
roughly 250,000 SF remaining to be absorbed. The hardest hit sector has been class C and D properties. As seen in the
overall US Market, prime retail continues to remain competitive and weaker centers struggle for tenants and become
candidates for redevelopment.
Capital Markets activity for retail has remained relatively non-existent with
only three retail assets trading in arm’s length transactions during 2017 and
none in 2018. Cap rates for these assets were reportedly in the high single
digit to low double digit range. Research has shown that additional retail
assets are expected to come to market in 2019. An uptick REO sales are
expected, as more loan maturities come due.
Redevelopment and Development remain mostly on the side lines with
many retail landlords investing in property remodeling, upgrades and
repairs. Many retailers are also investing in the shopper experience with
remodeling or major repairs and upgrades post Irma and Maria.
One notable new development is the District Live located next to the
Puerto Rico Convention Center. The project opening in 2019, consists of a
performance venue for 6,000 patrons and more than 80,000 sq ft of other
food and entertainment spaces. A 175 room A-Loft hotel is also proposed for
the project.
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