NEW YORK--(BUSINESS WIRE)--While it’s no secret that e-commerce has transformed the retail sector, it may surprise institutional investors that retail real estate can still offer attractive returns, according to a new research report issued today by StepStone Real Estate.
StepStone’s report, “Retail Real Estate: Clean Up in Aisle Six, or Heading to Chapter-7?,” finds that despite a record number of store closings in 2017, the sector is not dead. Retailers are realizing the benefits of omni-channel operations, and some formerly online-only companies, such as Bonobos, Athleta, and Warby Parker, are opening physical retail locations. Moreover, “trophy” malls are unlikely to lose much foot traffic in the near term due to their strong market demographics and merchant mixes.
However, the StepStone report recognizes that many retail locations will cease to exist in their current form. Malls in less desirable locations will be replaced by offices, medical facilities or multifamily housing. Others will be converted to warehouses and distribution centers, enabling e-commerce companies to reduce delivery times to consumers.
Despite the industry’s ongoing transformation, the StepStone report notes that retail has been the best performing and least volatile sector among the primary property types over the past 20 years, according to the NCREIF Property Index. And while past returns do not guarantee future results, developments in the retail landscape over the last two years have yet to lead to significant changes in retail valuations or fundamentals, according to the report.
“While institutional investors should be cognizant about the potential value erosion that’s likely to occur at certain retail properties, we believe they should also opportunistically invest in assets that are well positioned to take advantage of today’s retail trends,” said Jeff Giller, Partner and Head of StepStone Real Estate. “The re-pricing in the industry will take time, so investors shouldn’t worry about the risk of being too late.”
To read the full report, please click here.
About StepStone Real Estate
StepStone Real Estate (“SRE”) is part of StepStone Group (“StepStone”), a leading private markets firm that oversees more than US$135 billion of private capital allocations, including over US$35 billion of assets under management. In January 2018, SRE announced its agreement to acquire Courtland Partners. Founded in 1995, Courtland Partners is a leading institutional investment adviser focused exclusively on real assets and currently advises on approximately US$95 billion.
StepStone prudently integrates fund investments, secondaries and co-investments across private equity, real estate, infrastructure & real assets and private debt to create solutions that can be customized according to the objectives of any private markets investment program. StepStone is a global firm with offices in Beijing, Dublin, Hong Kong, La Jolla, London, Luxembourg, New York, Perth, San Francisco, São Paulo, Seoul, Sydney, Tokyo, Toronto and Zurich.