LAS VEGAS—The most successful retail projects today are based on a clear understanding of how to meet the demands of consumers who price-shop online, Gary M. Ralston, CCIM, told an ICSC RECON audience earlier this week. Ralston, managing partner at Coldwell Banker Commercial-Saunders Ralston Dantzler, presented a course outlining what to consider in a project's feasibility analysis. Some 35,000 real estate professionals gathered at the Westgate Hotel and Las Vegas Convention Center for this year's RECON.
“When you are doing financial analysis, you have to know the nature of the demand,” said Ralston. “Real estate is people, and the market is better than it was, but over the past 10 years, really not so much. But today the US is a global safe haven for capital. As rents go up, we get to equilibrium and then finally back to a recession and negative rent growth over 10 years.”
Ralston said the US treasury is a benchmark for cap rates, but he questioned if cap rates really do rise as interest rates also rise. “Retail is going up,” he said. “Walmart is almost 10% of non-auto sales. Walgreens is the number six retailer—it's how they can be on the best corners in the country. Retail sales are at $4.2 trillion and that's how we justify the space we have. Dollar stores and warehouse stores are climbing the ladder.”
With the consumer trading down, Ralston stressed the importance of looking for convenience, value and efficiency. “Who took Circuit City's business?” he asked. “Walmart. And Amazon is the poster child for e-commerce. They both have lower gross margins than their competition, but Walmart is still selling for less and they have three quarters of a billion square feet of stores.
“The Internet means we have informed consumers; people are price shopping on the Internet," he continued. "That puts retail margins under pressure and that means retailers want lower rent. Landlords are making greater use of service tenants to maintain occupancy. Healthcare is a good example of this.”
Ralston offered a list to follow when doing a feasibility study: start with a regional location map; find county and zip code demographics; obtain traffic counts for the market area; note any landmarks nearby; create a map which includes other recognizable names with logos (McDonalds and Walmarts are good site selection tools); note traffic lights and drive time; get housing and hotel data; and note access points.
“Look for ways to add value, like a drive-thru and separate building data from building ownership,” said Ralston. “Understand the zoning and the lease.
“All these can show how robust buying power is,” concluded Ralston.
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