Of the major commercial property types, retail has turned in the strongest performance over the past three years. In the US, this is evident from a glance at the NCREIF Property Index, where retail has gone from worst to first. Part of the reason for this is that consumer spending, which generates take-up of retail space, has held up remarkably well in developed countries. By comparison, business capital spending, which is closely linked to demand for office and industrial space, has fallen sharply.
Low interest rates across the world have encouraged consumers to spend. Nowhere is this more evident than in the housing markets, where sales and prices have surged in most corners of the globe. Home sales generate consumer spending as new homeowners visit furniture and home improvement stores to fix up their new abodes.
Competition among retailers has been intense in the US since the mid-1980s when big-box retailers began spreading across the landscape, siphoning sales from independents, small chains and traditional department stores and valuation services Now this competition is being repeated around the world. Discounters are flourishing, forcing other retailers to find their market niche or face oblivion. Department stores catering to the middle class are losing customers at both ends
It seems as if the world’s middle class no longer wants to be thought of as ‘middle.’ They splurge in expensive boutiques at the same time that they scrimp at the discounters or buy in bulk from the warehouse clubs. In the US, Wal-Mart, Target and a handful of other retailers have cornered the low-price market, while high-end retailers have siphoned wealthy shoppers and those who want to appear wealthy. Squeezed in the middle are department stores such as Sears and JC Penney along with struggling discounters such as Kmart, which are scrambling to defend their shrinking niches.