RealEstateNews 12.2.24

Weekly News Roundup

• Retail Stores that Thrive in Online World
• Residential Real Estate Investing Declines
• Office Conversions Picking Up

Retail Stores that Thrive in Online World

Online shopping is at a record high. For a change, shopping center owners aren’t threatened. Americans bought $300 billion in retail goods online last quarter, with e-commerce accounting for 16.2% of all retail sales, according to data from the U.S. Census Bureau. Still, after years of worrying that e-commerce would decimate bricks-and-mortar stores, retail landlords now say the sector is stronger and more insulated from online competitors than even a few years ago.

Retailers are figuring out how to adapt to e-commerce’s continued growth. The most successful offer their customers experiences that they can’t find online, such as indoor rock climbing at Dick’s House of Sport and eyebrow waxing at Sephora, and make it easy for customers to buy from them both in-person and online. Less than 2% of TJX’s total sales occurred online in 2023 and through the first six months of this year, according to a spokesman.

Market capitalization at TJX, which owns several brands including T.J. Maxx, Marshalls and HomeGoods, still swelled 194% over the past decade to more than $130 billion, according to FactSet. The discount chain attracts shoppers from across the income spectrum by creating a “treasure hunt” experience. It sources merchandise in limited quantities from 21,000 vendors in more than 100 countries. The strategy prompts hardcore shoppers to time their visits with the arrival of new shipments in the hopes of snagging heavily discounted designer handbags and clothing. Source: Wall Street Journal

Residential Real Estate Investing Declines

Investor market share in home sales dropped to 15.9% in the third quarter, the lowest in four years but still close to pre-pandemic norms. Real estate investors purchased 2.3% fewer homes in the third quarter of 2024 compared to the same period last year, according to Redfin’s latest data. Investors bought 49,380 homes in the third quarter, a figure consistent with pre-pandemic averages of around 50,000 purchases per quarter. By contrast, during the peak of 2021’s housing boom, quarterly purchases neared 100,000.

While the number of homes purchased dipped, the total dollar value of these transactions increased by 3.4% year-over-year to $38.8 billion, keeping pace with rising home prices. Several factors have tempered investor activity, particularly in markets that saw explosive growth during the pandemic. The average profit margin on homes flipped by investors declined to 55% in October, down from 64% a year ago. Despite this, margins remained higher than pre-pandemic levels, when typical gains hovered around 45%. Source: Redfin

Office Conversions Picking Up

Developer efforts to convert emptying office towers into residential buildings have largely gone nowhere. That may be finally changing. The prospect of transforming unused office space into much-needed housing seemed a logical way to resolve both issues. But few conversions moved forward because the cost of acquiring even an aging office building remained too high for the economics to pencil out.

Now that office vacancy has reached record levels, sellers are willing to take what they can. That has caused values to plunge for nothing-special buildings in second-rate locations, making the numbers on many of those properties now viable for conversions. Seventy-three U.S. conversion projects have been completed this year, slightly up from 63 in 2023, according to real-estate services firm CBRE Group. But another 309 projects are planned or under way with about three-quarters of them office to residential. In all, about 38,000 units are in the works, CBRE said.

In the first six months of this year, half of the $1.12 billion in Manhattan office-building purchases were by developers planning conversion projects, according to Ariel Property Advisors. While New York, Chicago and Washington, D.C., are leading the way, conversions also are popping up in Cincinnati, Phoenix, Houston and Dallas. Cities such as Chicago, Washington, D.C., and Calgary, Alberta, have started to roll out new subsidies, tax breaks and other incentives to boost conversions. Source: Wall Street Journal