U.S. Retail Outlook - us.jll.com

Retail Outlook

United States | Q1 2016

2JLL | United States | Retail Outlook | Q1 2016

Contents

KEY TAKEAWAYS FROM THIS QUARTER3

5

8

12

STATISTICS

TREND HIGHLIGHTS

PROPERTY CLOCK

14 DEVELOPMENT

16 EMPLOYMENT

17 WEATHER MAP

18 U.S. RANKINGS

Mixed-use is seeing unmixed demand and development growth


KEY TAKEAWAYS FROM THIS QUARTER’S REPORT:

• While the U.S. vacancy rate stayed flat at 5.6 percent in the first quarter of this year, demand has comfortably exceeded supply in the past four quarters.

• Retail growth is closely tracking resident growth: where demographics are strong, demand is flourishing.

• While demand is on the rise, in markets where new supply has lagged, tenants—particularly high-end retailers—are finding it challenging to find suitable space in which to expand.

While supply is inching upward, we have a few years until demand and supply hit equilibrium

Fitness, food and furry friends will help boost demand for retail space this year

• Even with the increased competition, the sporting goods segment itself is performing well, with healthy future prospects. Industry revenue is expected to increase 2.7 percent from 2016 to 2021.

• While the restaurant industry, on a whole, has seen strong growth in both sales and number of locations, fast-casual restaurants are definitely seeing above-average performance and growth.

• While supermarkets and supercenters like Target and Walmart have been gaining pocket share of pet spending, thanks to growing selections and ultimate convenience, big-box pet stores like PetSmart and Petco dominate the specialty side of the market.

• New developments tend to feature more of a mixed-use, open layout rather than the downtown fortress malls of previous decades.


KEY TAKEAWAYS FROM THIS QUARTER’S REPORT:

• Practically all of the major retail construction currently under way in Florida’s Dade and East Broward counties is for mixed-use development, with very little in the way of traditional neighborhood or power center projects.

• San Francisco’s highly competitive retail demand means that money talks big in the metro. Retailers catering to lower-income demographics are being replaced by higher-end tenants who are willing and able to pay the escalating rents.

• Gen X and millennials along with empty nesters are driving population growth, particularly in urban areas, where consumers are looking for live-work-play communities. As a result, there has been a boost in mixed-use projects with retail space on the ground floor of office or multifamily buildings.

High population concentration is creating a surge of mixed-use development

Employment gains should help to push up retail sales later in the year

• More workers are now reentering the labor market thanks to both ample job opportunities and accelerating wage growth.

• Weak motor vehicle sales dragged down retail sales in March, but growth should gradually improve in the future, boosted by steady job gains and growing income.

Total U.S.

Type Total s.f. Total vacancy YTD net absorption Q1 16 Avg rent QOQ% chg YOY % chg*

General retail 5,164,005,041 3.7% 8,213,773 $17.60 0.7% 3.5%Malls 886,483,179 5.3% 434,777 $17.20 -2.0% 5.7%Power centers 742,146,405 4.5% 807,104 $17.51 -0.3% 5.7%Shopping center 3,505,732,130 8.8% 4,645,390 $14.84 0.1% 0.7%

Specialty centers 81,347,288 5.5% 115,411 $16.97 -3.4% 1.7%

Total retail 10,379,714,043 5.6% 14,216,455 $15.93 0.2% 2.2%

While supply is inching upward, we have a few years until demand and supply reach equilibrium

5

Demand continues to outstrip supply

Retail fundamental improvement marches on in the first quarter of 2016. Total U.S. net absorption for the quarter totaled approximately 18.6 million square feet—a 20.8 percent increase from the first quarter of 2015. New supply deliveries in the quarter totaled 16.2 million square feet. While the U.S. vacancy rate stayed flat at 5.6 percent in the first quarter of this year, demand has comfortably exceeded supply in the past four quarters, resulting in vacancy compression of 40 basis points over the last year. Rents rose 0.5 percent from the fourth quarter and grew 1.5 percent year-over-year.

Several standout markets, including Miami, New York, Houston, Dallas, Fort Lauderdale, Boston and San Francisco ,are now seeing conditions typical of a peaking market, as rents see assertive growth and vacancy continues to compress.

Everything’s bigger in Dallas, including demand

Net absorption by retail subtype—Q1 2016

JLL | United States | Retail Outlook | Q1 2016

AtlantaBostonChicagoDallasHouston

Los AngelesMiami-Dade CountyNew York CitySan FranciscoWashington, DC

Broward CountyHawaiiOrange CountyOrlandoPalm Beach County

PhiladelphiaSan DiegoSeattleTampa

SECONDARY MARKETSPRIMARY MARKETS

*Major markets only

Source: CoStar, JLL Research

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. General retail Malls Power centersShopping centers Specialty centers

Retail growth is closely tracking resident growth: where demographics are strong, demand is flourishing. Net absorption as a percentage of retail gross leasable area, perhaps has been particularly strong in the “sunny” markets, like Hawaii, Palm Beach, Dallas and Tampa.

Vacancy rates continue to head downward

Across the nation, vacancy in specialty centers saw the greatest decline, dropping 100 basis points year-over-year. Mall vacancy inched down 10 basis points, year-over-year, while shopping center vacancy compressed by 60 basis points. Among U.S. shopping center types, power centers are still seeing the tightest overall market conditions, with total vacancy of 4.5 percent.

Limited supply pushes up rents in top markets

Rents continue to gradually inch up, with top-performing markets like Boston, Los Angeles and Palm Beach seeing the strongest growth over the last year.

Although construction is ramping up from its lows in the recession, development activity is still relatively modest, which is pulling up rents. While demand is on the rise, in markets where new supply has lagged, tenants—particularly high-end retailers – are finding it challenging to find suitable space in which to expand. Supply constraints in markets like San Francisco and Hawaii have led to significant rent increases since the recession. San Francisco’s rents are 23.8 percent above what they were in 2007, while Hawaii’s are 6.9 percent higher.



YOY vacancy compression by retail subtype

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Select top leases in Q1 2016


Rents by retail subtype—as of Q1 2016 Q1 2016 market indicators Primary markets Secondary markets

Vacancy 4.7% 4.9%

Vacancy change YOY -34 bps -38 bps

Absorption (s.f.) 4.6 million 2.2 million

Deliveries (s.f.) 3.3 million 2.0 million

S.f. under construction 23.7 million 5.8 million

Rents (p.s.f.) $28.75 $20.21

Rent change YOY 2.9% 2.3%


JCPenney Inland Empire, CA

152,178 s.f. 300 Inland Center Dr

Safeway East Bay/Oakland

148,560 s.f. The Orchards at Walnut Creek

Kroger Atlanta

123,000 s.f. Dawson Marketplace

Market Basket Boston

80,000 s.f. South Coast Marketplace

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Spotlight on fitness, fast casual and furry friends

8

Why some sporting goods retailers are striking out

Consumers in the U.S. are more health-conscious and fitness-focused than ever. According to a study done by Hartmann, 70 percent of consumers consider being physically fit as important as being “well.” The rising importance of wearable technology that tracks key health stats like heart rate has been not only a consequence of growing health awareness, but also a contributor. This prompts a question: if consumers in general are focused more on fitness, why are some sporting goods retailers failing?

Sports Authority’s financial woes have been much in the news lately, with the latest conclusion that the retailer is looking for buyers for its stores and will most likely close the majority of its 463 locations. There is talk of several retailers, like Dick’s, expressing interest in some of these locations. Such purchases would defray some of the impact of vacant real estate set to re-enter the market. West Coast–based Sports Chalet is also planning to close all its 47 locations, as well as shutting down its online operations.

Dilettantes versus enthusiastsThe crux of the problem for these retailers lies within intensified competition for the segment, mainly from discount department stores like Target and Walmart, as well as dilution of sales by online contenders and emerging athleisure retailers. Brands themselves, like Nike, are also increasing their direct-to-consumer sales push. Consumers of sporting goods can be divided into two camps: (1) dilettantes, aka those that dabble within a sport or fitness activity but are not serious enough to invest heavily. They are looking for convenient and affordable access to equipment, which is where supercenters shine by offering lower prices


and a wide array of other goods, so consumers don’t have to make an additional stop; and, (2) enthusiasts: those consumers who are serious enough about the sport to seek highly-specialized gear, as well as expert services and advice; Dick’s, REI and small specialty sports retailers have found success by catering to this sub-segment.

Given these competitive factors, success for sporting goods retailers depends heavily on innovation, superior customer service and a very strong value proposition, either as a major purveyor of a wide selection of sporting goods, like Dick’s, or a niche, specialty store with high-level expertise in the field, like Golf Galaxy, which is also owned by Dick’s. In addition to increased competition, the fact that Sports Authority and Sports Chalet were debt-heavy contributed to their demise.

Team participation wanes in favor of individual sports

Although individual fitness participation is on the rise, adolescent participation in team sports has waned in recent years (National Sporting Goods Association). As a result, retailers that rely on sales from

Retail subtype Definition Examples

General Retail Consists of single-tenant freestanding general-purpose commercial buildings with parking

Drugstores, some groceries, streetfront urban retail stores

Malls Includes lifestyle centers, regional malls and super regional malls Primarily anchored by mass merchants, fashion and department stores

Power centers Consists of several freestanding anchors with minimal small tenants,250,000 – 600,000 s.f.

Primarily anchored by big-box tenants and discount supercenters

Shopping centers Includes community centers, neighborhood centers and strip centers Primarily anchored by groceries and local services

Specialty center Consists of the combined retail center types of airport retail, outlet center and theme/festival center

Primarily anchored by manufacturers’ and retailers’ outlets

Total Retail All retail building types in both single-tenant and multitenant buildings, including owner-occupied buildings All retail

categories such as baseball, basketball, football and soccer need to look for sales elsewhere. What has been seeing increasing traction are high-intensity interval training, yoga, outdoor activities and individual sports, like skateboarding, snowboarding, target shooting and archery—thanks, Hunger Games—all of which grew in popularity over the last five years. “Smart” exercise sports activities like the exercise video game EA Sports Active 2, which features a wireless control system, motion sensors for legs and arms and heart-rate monitoring, are also picking up momentum.

Outlook is positiveEven with the increased competition, the sporting goods segment itself is performing well, with healthy future prospects. The number ofindividuals participating in sports is expected to increase this year (IBISWorld) and to grow 1.8 percent by 2021. As a result, sales are on an upward trajectory. Sales per square foot for the segment average $231 and increased 4.0 percent year-over-year (PNC RE). Moreover, industry revenue is expected to increase 2.7 percent from 2016 to 2021 (IBISWorld).

The top five expanding sporting goods retailers plan to open approximately 135 new stores in the next year, with a potential square-foot impact of almost 3.0 million square feet. The sporting goods segment as a whole may open as many as 175 new stores in the next 12 months, with potential RE impact of almost 8.0 million square feet.

Fast casual’s continued popularity will impact many retail centers

Fresh is bestAs we have seen, consumer interest in health and fitness is growing. We’ve seen it in the way consumers track health fundamentals via


wearable technology, the expansion of fitness centers and retail clinics, and the increased emphasis on healthy, fresh food. While the restaurant industry, on a whole, has seen strong growth in both sales and number of locations, fast-casual restaurants are unquestionably seeing above-average performance and growth.

Appetite for fast casual is risingWhile still a relatively nascent subsegment—fast casual represents approximately 7.0 percent of total quick-service visits – it is a burgeoning one. Fast-casual visits have increased between 5.0 and 9.0 percent each year over the past five years, according to NPD Group. Furthermore, the fast-casual restaurant sector saw sales growth of over 550 percent since 1999—10 times the growth in the fast-food industry. Future prospects also look healthy, with forecasted growth in the double digits through 2022, while the rest of the restaurant industry is predicted to only see about half a percentage point increase (Nation’s Restaurant News). As a result of growing popularity coupled with strong sales and margins, the subsegment is expanding its footprint; the number of fast-casual chain restaurants rose by 5.0 percent to 19,043 total units (NPD Group).

.

Source: Creditintell, Retail LeaseTrac

Top five sporting goods chains could open as many as 135 stores in the next year

$344$305 $276

$213 $211 $181 $175 $162

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$400.0Sales p.s.f. Store opening plans

Fast casual restaurants see mixed same-store sales growth

Source: MarketRealist, as of Q4 2015

-14.6%-1.1%

3.6%

9.3%

11.0%

Chipotle

Noodles & Company

Panera Bread

Qdoba

Shake Shack

YOY same-store sales change

Millennials stick to Chipotle, despite recent woesOne major player in the segment that has seen challenges lately is Chipotle, due to its food-safety issues at the end of 2015, where two E. coli outbreaks and a norovirus incident were tied to the burrito chain. Same-store sales for the restaurant chain fell 14.6 percent year-over-year, for the fourth quarter of 2015, and since then the company has struggled to regain its visitor share or previous sales levels. However, millennials—who represent the largest share of the chain’s overall traffic – have stuck with the chain. Visits increased by double digits last year. The restaurant also enjoys a high average sales per square foot of $958 and has made commitments to higher food-safety procedures, which should help mend its current sales quandary.

Major players see high sales p.s.f. and expansion plansOther fast-casual players like Shake Shack and Qdoba have seen strong growth in same-store sales—11.0 percent and 9.3 percent, respectively, as of the end of 2015. Shake Shack also boasts a very high average sales per square foot of $1,531. Five Guys, Chipotle and Panera Bread all had 12-month opening plans over 100 stores. The top five expanding fast-casual restaurants, which also includes Dickey’s Barbecue Pit and Smashburger, have a potential impact of over 1.5 million square feet.

Fast-casual restaurants, with their near-universal appeal and small footprints, can profit in a wide variety of retail centers, although they tend to target more upscale venues than the typical fast-food restaurant. Retail property types that will see the greatest expansion in fast-casual include downtown retail, freestanding retail, lifestyle centers, campuses, power centers and specialty strip centers.


Pet industry growth translates to real estate expansion

Man’s best friends open pocketbooksAmericans’ affinity for their furry friends will reach new levels in 2016. Around 65.0 percent (or more than 82 million) of U.S. households own a

pet. Millennials are driving the growth in pet ownership and spending, given that they see their pets as children as well as social currency, to show off on Instagram and Facebook. Because of the shifting nature of owner-pet relationships, more consumers are spending on non-essentials as well, such as pet clothing, toys and hotels. Millennials, in particular, are also doing more research on the best foods for their fluffy children, opting where possible for premium, natural or organic fare.

As a result, total spending on U.S. pets is expected to increase to $62.8 billion in 2016 (,IBISWorld) with specialty pet stores garnering 29.0 percent of this expenditure (or $18.2 billion). Total revenue for specialty stores is expected to reach a total of $21.6 billion by 2021 (IBISWorld).

Despite growing competition, major pet supply players are winningWhile supermarkets and supercenters like Target and Walmart have been gaining pocket share of pet spending, thanks to growing selectionsand ultimate convenience, big-box pet stores like PetSmart and Petcodominate the specialty side of the market (with market shares of 37.2 percent and 23.3 percent, respectively) and are expected to continue to grow (IBISWorld). Pet stores’ sales per square foot averages approximately $243—an 8.5 percent leap from the previous year. As a result of this robust and burgeoning performance, pet specialty retailers have the confidence to expand their pawprints.

The top six largest pet stores plan to open a total of 145 new locations, with a potential retail s.f. impact of 1.3 million (Retail Lease Trac), accounting for 70.0 percent of new retail space within the sector. Of this number, Petco and Pet Supplies Plus, combined, will account for more than half of potential new openings and 49 percent of new square feet. Besides its planned opening of 45–50 large stores (of 12,000–18,000 sf), PetSmart will also test out 12 micro stores, ranging from 6,000–7,000 square feet. While Petco plans to open 45 U.S. stores in the next 12 months, the retailer has also teamed up with Mexican supermarket Gigante to open up to 50 stores in Latin America by 2020.

Major fast-casual restaurants see above-average sales per square foot

$1,531

$958

$567 $545$416

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180

105

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$0$200$400$600$800

$1,000$1,200$1,400$1,600$1,800

ShakeShack

Chipotle PaneraBread

Qdoba Noodles &Company

Sales/Gross square feet

New stores planned—12 months

Source: Creditintell, Retail LeaseTrac

MIXED-USE PROJECTS IN THE MAKING

Good news for the little guySmaller independent pet stores are also enlarging their territory, with plans to open more than 120 stores in the next year. This will have a potential impact of more than half a million square feet. Pet store expansion will largely be concentrated in power centers, strip centers, neighborhood centers and freestanding retail.

Continued urbanization and demand for live-work-play neighborhoods have skyrocketed mixed-use development

Living for the cityThe urbanization trend continues in the United States, where many people are moving back into cities in search of a shorter commute, walkable communities and a live-play-work environment. Boomers and millennials, in particular, are both looking for enhanced access to jobs and amenities such as shopping, entertainment and health care. The U.S. urban population grew by 12.1 percent from 2000 to 2010, according to the U.S. Census, compared to the 9.7 percent overall growth rate for the nation (ULI). Even suburban communities are taking on more of an urban feel, with mixed-use development projects and more public transportation options.

Urban developments take a mixed-use formatAs a result, urban retail has seen a surge in demand, in both the leasing and capital markets sectors. With tenants willing to pay a premium for optimal space in these areas, combined with the lack of available space, developers are starting more construction projects. New developments tend to feature more of a mixed-use, open layout rather than the downtown fortress malls of previous decades.


American DreamMeadowlands, NJ

2016

The WharfWashington DC

2017

Miami WorldcenterMiami, FL

2017

Brickell City CentreMiami, FL

2016

City PointBrooklyn, NY

2016

3rd tallest building in Boston220,000 s.f. of retail and office space

Gourmet grocery, restaurant and fitness center

2.8 m.s.f.Amusement park, Ferris wheel, aquarium,

movie theater and performance arts theater

3.2 m.s.f.Residential, office, hotel, retail and cultural space

1.8 m.s.f.675,000 s.f. of retail, plus residential area

Cinema and rooftop park

5.4 m.s.f.One of the largest LEED-certified projects

Office towers, condos, cinema, hotel and retail

30 acres450,000 s.f. of retail + office and hotel spaceFormat: open-air, high-street-style shopping

Millennium TowerBoston, MA

2016

The six largest pet stores will account for 70 percent of new retail space in the sector

Source: Retail LeaseTrac

Other small pet stores

30%

Petco Animal

Supplies30%

Pet Supplies

Plus19%

PetSmart9%

Pet Supermarket6%

Pet Valu4%

Wild Birds Unlimited2%

Potential impact

1.9 m.s.f.

Retail property clock

12

Reading the clock

The JLL retail property clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock, with markets on the left side of the clock generally landlord-favorable and markets on the right side generally tenant-favorable. All of the markets have now moved to landlord-favorable, as rents gradually head upward and vacancy continues to contract. Major metros including Dallas, Boston, Hawaii, San Francisco, Miami, New York and Houston have moved to a peaking market as demand grows ahead of new supply additions. Once demand and supply reach equilibrium, the clock should strike midnight for most markets.


For malls (including lifestyle centers, regional and super regional malls), most of the markets have now moved to landlord-favorable. However, there is considerable difference in how well each market is performing. New York, San Francisco and Palm Beach enjoy structurally low vacancies and are therefore peaking. Conversely, Chicago and Philadelphia are bottoming markets, which have yet to see meaningful vacancy compression or rent gains.

Malls

Total retail

Peaking market

Falling market

Rising market

Bottoming marketUnited States, Seattle,

Orange County

San Diego

Atlanta, Orlando

Fort Lauderdale,Los Angeles, Palm Beach

Chicago, Philadelphia

San Francisco, Miami, New York City,Houston

Tampa, Washington, DC

Dallas, Boston, Hawaii

Peaking market

Falling market

Rising market

Bottoming marketOrlando, Washington, DC, Atlanta

Tampa

Dallas, Fort Lauderdale, United States

Houston

Los Angeles, Miami

Chicago, Philadelphia

San Diego, Hawaii

New York City, San Francisco,Palm Beach

Boston, Orange County, Seattle


Shopping centers

Power centers

For shopping centers (including community centers, neighborhood centers and strip centers), the markets on the clock are somewhat closely clustered in the rising segment, as significant improvement has only begun to manifest in recent quarters. As conditions continue to improve, more markets should gradually move past nine o’clock toward midnight.

As power centers (centers anchored by big-box tenants and discount supercenters) have seen strong improvement over the last two years, most metros are in the rising market quadrant. There are a few outliers, such as San Francisco, which is distinctly under-retailed in most of its retail property types, and New York City, where recent fluctuations in vacancy has dragged its power center performance into a bottoming market.

Peaking market

Falling market

Rising market

Bottoming market

Philadelphia, Houston, Los Angeles, Orlando, United States

Palm Beach

Orange County, Miami, New York City, Seattle

San Diego, Chicago, Atlanta, Boston

Washington, DC, Fort Lauderdale, Hawaii, Tampa

San Francisco, Dallas

Peaking market

Falling market

Rising market

Bottoming market

Atlanta, Los Angeles, Orlando, Seattle, Tampa

Dallas, Fort Lauderdale, Houston, Miami

Philadelphia

San Francisco, Palm Beach

Chicago

Boston, Hawaii, Orange County, San Diego

Washington, DC, New York City, United States

Mixed use makes sense in South FloridaPractically all of the major retail construction currently under way in Dade and East Broward counties is for mixed-use development. The increasing population densities in the market are driving this trend and helping to justify soaring land costs. The reality is that land is too expensive for traditional retail parking lots, and retail rents levels do not currently justify building structured parking solely to support retail. By adding other uses—primarily residential and hotel, but also some office product – such projects are much more feasible. Municipalities are also pushing for more mixed-use developments and allowing developers a much greater density level if they incorporate multiple product types and community uses.

Food and fashion are big in FloridaThe most active retail tenants in South Florida overall are grocers: Publix maintains the top spot, but Trader Joe’s, Fresh Market, Whole Foods and Sedano’s are also active. There has also been increased interest from other groceries such as Lucky’s Market, Kroger and Sprouts. Restaurants have also seen a good deal of expansion in the market, driven by demand from millennials and international visitors. Limited available retail space has translated to very strong performance for restaurants.

In the core of Miami and Miami Beach, there has been a surge in demand for luxury fashion and accessories. Both new as well as international retailers expanding into the United States are looking in these areas, specifically at Brickell City Centre, Lincoln Road, the Design District, Bal Harbour Shoppes and Aventura Mall.

South Florida growth is reaching its inflection pointThe South Florida market has seen tremendous growth since the recession ended. However, current struggles in international economies, as well as the strengthening dollar, have dampened economic growth in the market, especially the demand for new housing, which has driven much of the development in this cycle. While we don’t foresee any kind of crash in the market in the short term, we do anticipate some pullback in the market during the first half of this year, with moderate retraction in both rents and occupancy as retailers are being slightly more cautious.

14

Markets with the lowest vacancy rateSan Francisco

2.2%Hawaii2.6%

New York City3.2%Miami3.3%Boston3.8%

Markets with the highest vacancy rate


Philadelphia5.6%Dallas5.8%Orlando6.0%Atlanta7.0%Chicago7.7%

Population density propels mixed-use development

People power pushes up progressAtlanta’s oversized demographic growth will be the driver that propels the market into robust growth. Growth in the key spending cohort (thoseaged 35–54) will be well above average. While population growth is expected to be spread throughout the market, neighborhoods north of I-20 should see the greatest and swiftest expansion and, with above-average incomes, boost demand for retail space. Job growth has helped to support the burgeoning population and is being driven by relocation of

SOUTH FLORIDA’S STRONG DEMOGRAPHICS SUPPORT LIVE-PLAY-WORK COMMUNITIESFL

ATLATLANTA’S POPULATION BOOM BOOSTS DEMAND AND DEVELOPMENT

corporate headquarters like Mercedes, Porsche and State Farm, as well as the Braves Stadium relocation.

Neighborhoods like Midtown, Buckhead, Brookhaven, Alpharetta and the Piedmont beltway are also growing at an above-average pace. With increased in-migration and home purchases will come demand for home-related products and services. Furniture and home decorating store leases are already picking up as a result of higher demand. Recent leases include Today Home Furniture in Forest Park and Home Goods in Decatur and Snellville. Specialty grocery stores (e.g., The Fresh Market), luxury theaters and quick-service restaurants are also seeing significant expansion.

Urban-minded consumers are pushing up demand for mixed-useGen X and millennials along with empty nesters are driving population growth, particularly in urban areas, where consumers are looking for live-work-play communities. As a result, there has been a boost in mixed-use projects with retail space on the ground floor of office or multifamily buildings. Ponce City Market, for example, has been completely redeveloped from a historic Sears, Roebuck and Co. building into a vibrant community hub, featuring residential and office space, as well as a humming retail scene with artisan chefs and local vendors.

Hawaii should remain one of the tightest U.S. retail markets over the next five years, thanks to extremely low vacancies and low levels of construction. Tourism continues to be a boon for the market, and visitor volume should continue to grow at a steady pace. Total visitors to Hawaii exceeded 8.6 million in 2015, increasing 4.1 percent from 2015. Visitor volume should continue to grow at an annualized rate of close to 2.0 percent over the next four years (Hawaii.gov). There is a very close correlation between visitor volume and retail sales—a correlation of 0.97 since 2010 – with a lag of approximately one year between the former and the latter.


Visitor volume will continue to rise in Hawaii

-15.0%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%

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Source: Hawaii.gov

Community centers have a high share of retail demand in Hawaii

Community centers30.0%

Malls 14.0%

Neighborhood centers8.0%

Power centers4.0%

General retail/other

44.0% Demand share

HITOURISM AND TIGHT AVAILABILITY DEFINE THE HAWAII MARKET

Smaller retail assets do well here. Community centers have had some of the highest share of demand over the last few years. Since Hawaii is significantly under-retailed, with an estimated 40 square feet per person (compared to around 50 square feet per person nationwide), new supply deliveries will not do much to undermine low vacancy rates and strong rents.

Current projects under way include the renovation of International Market Place, which will entail an expansion to a 360,000-square-foot complex, anchored by Saks Fifth Avenue; and Ka Makana Ali'I, a 1.4 million-square-foot regional mall.

Source: PPR

Labor market growth continues to trend upward, with first-quarter new hires on par with the average for the past four years. While the energy sector slump is still a factor, it does not seem to be diminishing growth in other parts of the economy. Service gains have been healthy and broad-based. More workers are now reentering the labor market thanks to both ample job opportunities and accelerating wage growth. The current pace of employment growth should be enough to absorb further increases in the working-age population. At its current pace, the labor market should reach full employment by the second half of this year.

Weak motor vehicle sales dragged down retail sales in March. Sales also fell at restaurants, apparel stores, department stores and nonstoreretailers, while building supply stores, drugstores and gasoline stations showed an increase. Despite this poor performance, growth should gradually improve in the future, boosted by strong and steady job gains and growing income.

Employment remains steady

Employment gains should help to push up retail sales later in the year


Source: Economy.com, JLL Research

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5

Sep-

15

Jan-

16

Nonfarm Unemployment rate

Retail sales weak in first quarter of 2016

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Dec-

11Ma

r-12

Jun-

12Se

p-12

Dec-

12Ma

r-13

Jun-

13Se

p-13

Dec-

13Ma

r-14

Jun-

14Se

p-14

Dec-

14Ma

r-15

Jun-

15Se

p-15

Dec-

15Ma

r-16

Month-over-month % Change (L)

Year-over-year % Change (R)

Source: Economy.com, JLL Research

U.S. retail weather map

17

Rents growing (greater than 1.5% QOQ)

Rents flat (between -0.5% and 1.5% QOQ)

Rents falling (less than -0.5% QOQ)

00

QOQ change in rentYOY change in rent

Rental conditions



-5.1%

0.1%

2.3%6.0%

-3.8% 1.8%

-1.3% 0.3%

-2.9%1.8%

4.1% 8.3%

0.1% 1.0%

1.0%6.3%

2.6% -1.3%

2.2% 7.3%

1.2% 0.4%

1.1% 0.4%

-0.4%-0.5%

0.5% 4.3%

0.7% 9.6%

2.3% -1.9%-0.1%1.3%

-0.6%-1.0%

0.4% 8.1%

Seattle

San Francisco

Orange County

Los Angeles

San Diego

Hawaii

Dallas

HoustonTampa

Miami

Broward

Palm Beach

Orlando

Atlanta

ChicagoDC

Philadelphia

New York CityBoston

Q1 2016 net absorption (millions of s.f.)

U.S. retail rankings

18

Total rent change (year-over-year)

Total vacancy change (year-over-year, bps) Q1 2016 deliveries (millions of s.f.)


9.6%8.3%

8.1%7.3%

6.3%6.0%

4.3%1.8%1.8%

1.0%0.4%0.4%0.3%

0.1%-0.5%-1.0%-1.3%-1.3%-1.9%

BostonPalm Beach County

Orange CountyLos Angeles

DallasSan Francisco

OrlandoHouston

Miami-Dade CountyBroward County

PhiladelphiaSeattle

Washington DCHawaiiTampaAtlanta

San DiegoChicago

New York City

1,599,843956,615

820,029683,466

536,351348,774

318,939298,815

251,542242,368216,162

183,089127,573121,933

94,21526,53025,374

-25,412-88,581

DallasChicagoTampa

Los AngelesAtlanta

OrlandoPalm Beach County

BostonWashington DC

HoustonHawaii

PhiladelphiaSeattle

San DiegoMiami-Dade County

Orange CountyBroward County

New York CitySan Francisco

-90-90-80

-70-70

-60-60-60

-50-40

-30-20

-10-10-10-10

1020

50

Palm Beach CountyAtlantaTampa

Broward CountySeattleDallas

ChicagoOrlando

New York CityWashington DC

HawaiiMiami-Dade County

PhiladelphiaBoston

HoustonLos Angeles

San FranciscoOrange County

San Diego

1.20.8

0.60.4

0.40.4

0.40.3

0.20.2

0.10.1

0.10.1

0.00.00.00.00.0

DallasHouston

Orange CountyPhiladelphia

BostonTampa

ChicagoAtlantaHawaii

Los AngelesPalm Beach County

OrlandoMiami-Dade County

San DiegoBroward CountyWashington DC

SeattleSan FranciscoNew York City

JLL’s retail experts partner with retailers, investors and owner/operators with an extensive team of dedicated experts around the world. They understand the inherent complexities and variability associated with both the retail industry and increasingly complex capital markets. Its specialists are recognized for their independent and expert advice to clients, backed by industry-leading research that delivers maximum value. With leading in-depth knowledge of the local, regional and global market dynamics, JLL aims to truly partner with its clients for the entire life cycle of an asset or lease. Its experts deliver clients maximum value that supports and shapes their investment, site selection and brand strategies.

JLL is the largest third-party retail property manager in the United States with more than 1,000 centers, totaling 125 million square feet under management. The firm has more than 140 retail brokerage experts spanning more than 30 major markets, representing more than 900 retail clients. In 2015, JLL’s Retail Group completed transaction management and portfolio optimization on more than 1,500 leases, negotiated over 500 leases for retailers and over 1,000 leases for landlords and completed more than $2.7 billion of investment sales, dispositions and financing for investors. For more news, videos and research from JLL’s Retail Group please visit: www.jllretail.com


Listing typeManagement and LeasingManagementLeasing and Sales

Overview of JLL retail services

http://www.jllretail.com/

For more information, please contact:

About JLLJLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com

About JLL ResearchJLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc.

COPYRIGHT © JONES LANG LASALLE IP, INC. 2016

Greg MaloneyPresident & CEORetail Americas+ 1 404 995 [email protected]

James CookAmericas Director of Research, Retail+1 317 810 [email protected]

Keisha McDonnoughSenior Research AnalystRetail Americas+ 1 954 990 [email protected]

http://www.jll.com/

mailto:[email protected]



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U.S. Retail Outlook - us.jll.com