The rise in online retail has undeniably shifted consumer behavior. While the change has led to high-profile declines for big-box retailers such as Sears and Toys-R-Us, does it make this the wrong time to invest in retail real estate?
Like most real estate investments, the answer depends on the circumstances. There are plenty of good investments to be made within the retail industry if you know where to look. National Real Estate Investor recently spoke with industry insiders and came away with key takeaways for retail real estate investing.
Low-tax states are often the best place to look for investments, and Texas falls in that category. Houston and Austin are also two markets that have seen steady job growth and have the demographics to support retail, according to Christopher Muoio, a senior quantitative strategist at online real estate marketplace Ten-X.
The location within a city also matters, with transportation being a key factor. That means there should be plenty of parking and/or access to foot traffic and public transportation, depending on the demographics of the area.
Find lucrative industries
People still need physical retail options. As we mentioned in our post on real estate investing trends in 2019, the service industry is an especially good market for retail, which includes drugstores, restaurants, health care providers, fitness clubs and entertainment venues. Any similar business that is hard to replicate online can make for a good retail real estate investment.
Focusing on real estate with a single tenant may also be a good strategy. Large fitness clubs and entertainment venues often fit this category because the businesses require a large physical footprint. Restaurants, especially fast food with a drive-thru, often do as well.
Why is this a good market? In addition to the physical location being necessary to the business, cap rates for single-tenant locations rose from 5.97% to 6.12% from 2017 to 2018.
There is plenty to consider when choosing real estate investments. For many investors, retail is still a lucrative option because they know where to look.