One of the main things on the minds of retail real estate professionals is how the sector will be impacted by store closures from the merger of Office Depot and OfficeMax. Two retail professionals from CBRE give their take on the matter. Naveen Jaggi, senior managing director, retail services: retailer representation, Americas; and Todd Caruso, senior managing director, Retail Agency, recently spoke to us, and said the closures won't necessarily be a bad thing for retail real estate landlords. They also gave their take on other trends in the sector.
GlobeSt.com: Do you think the large waves of store closures are over and what is your take on how landlords will handle the Office Depot-OfficeMax merger?
Naveen Jaggi: Yes, the large wave is over and the OD/OM merger brings opportunity in quality centers. There is still demand for space, especially in gateway cities across the US, so look for the OM/OD consolidation to lead to a race for space in certain "in demand" markets such as New York City, Washington DC, San Francisco, Texas and Boston, where rents are trending above pre-recession levels in grade-A centers.
Todd Caruso: There will clearly be excess from the OD/OM merger, and I presume that this stock will move in step with what we witnessed with Linens 'n Things and will continue with Best Buy. Generally speaking, well located mid- and large-box vacancies have been committed by traditional retailers in the categories of: food/grocery, health clubs, theaters, and pet and sporting-goods stores. The less desirable locations could get filled by medical, entertainment, and food and restaurant tenants.
GlobeSt.com: Does it seem like more of a landlord's market than in the past?
Jaggi: It's not really applicable in this day. Development is at such a smaller pace than pre-recession that it's all about quality: tenant and landlord.
Caruso: Gone are the days where we can make a blanket statement that it is a landlord's or tenant's market. Markets today are so much more finite and fragmented that pockets can lean in either direction. It is safe to say that the competition for “A” located retail is extremely tight, and the disparity between A and B-plus, and anything below, continues to grow.
GlobeSt.com: There are a lot of global retailers entering the US right now. What is driving that?
Jaggi: US consumer confidence is growing, and when that happens, the US consumer spends. With many legacy US retailers investing in international markets the opportunity exists for creative retailers to generate consumer interest in a vacuum created by less domestic growth of US retailers. Fashion and specifically chic affordable fast fashion retailers from abroad are leading the charge into the US.
GlobeSt.com: How did RECon go for you…was it better than expected and was the mood better than the past few years?
Jaggi: It was the first time in five years where I heard more about deal making than discussions about the economy. Every retailer I spoke with felt this ICSC the most truly productive in deal making, new market entry discussions, and landlords showing interest in negotiating and incentivizing credit tenants with tenant allowances.
Caruso: It was better than expected. My takeaway comment was that I did not hear one person reference the economy or speculate where we were in the cycle coming off the recession. That issue remained at the centerpiece of most of the conversations that I had last year and was not the case this year.
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