As economic expansion continues, core or primary markets are tightening, and secondary and tertiary markets are starting to gain traction. The following report highlights a top investment region – the midwest and the current shopping center market.
Capital has historically been drawn to the larger Midwestern cities such as Chicago and Minneapolis which have more significant economic diversity when compared to smaller, secondary, and tertiary markets. However, as yields have come more compressed in the Midwest, most of the primary market capital has started to flow into these secondary markets. A recent report by Urban Land Institute shows that despite the region’s slow demographic and economic growth rates, the educated and productive workforce along with the lower business and living costs have attracted investors to these areas. Population growth rates in Indianapolis, Columbus, and Madison are all projected to exceed the national rate. All that is needed to keep this region on the path to future growth is to continue attracting a new workforce.
In the Midwest, an ongoing trend is the revitalization of neighborhoods. For example, Detroit, Indianapolis, Cleveland, and Cincinnati can all point to successful projects that have revitalized neighborhoods, and it isn’t surprising that the market in this region is particularly interested in the potential of the new Opportunity Zone legislation to increase levels of new development.
The general state of retail in the Midwest remains relatively positive. Quality shopping centers in prime locations remain in high demand. Also, demand for grocery-anchored centers, with a top-three grocer within the market is healthy, even in more tertiary markets. The most challenged segment is power centers in B or C markets. Given power centers are larger than traditional grocery-anchored centers, more equity is needed for investors to acquire and to operate them, and the pool of investors willing to put large amounts of equity at risk in secondary and tertiary markets is limited. However, pricing for these power centers stabilized in 2018 after having fallen for the previous 12 to 18 months.