What's Hot and What's on Tap for Retail This Year?

Trenton McCullough, Peter McQuaid and Greg Vanlerberghe weigh in on retail trends.

SCOTTSDALE, AZ—The Scottsdale-based team made up of senior vice presidents, Trenton McCullough, Peter McQuaid and Greg Vanlerberghe plus associate Mark Cassell are the retail force behind LevRose Commercial Real Estate , a boutique firm specializing in brokerage and property management.  Combined, they have more than 35 years of experience in the CRE industry with a specialty in retail. GlobeSt.com: Looking ahead, what’s in store for retail in the commercial real estate industry in 2016? LevRose retail team: So far, we’ve already seen a transition of big box retailers looking to scale down or vacate their premises altogether. It’s the genesis of a “retail revolution” that is looking for a more efficient footprint that meets the needs of the modern user. We’ve also seen a lot of push for “adaptive-reuse” for many cities in the Greater Phoenix market. For example, our major cities are working with specialists in economic development in order to create strategies that can revive their downtown areas.  The need for a center of entertainment, culture and influence is becoming increasingly popular and of high demand. Each city is looking for a way to define itself with a significant downtown development. GlobeSt.com: For those looking to buy or sell in 2016, what trends should they be on the look-out for? LevRose retail team: Whether they are looking to sell or buy a retail asset, both will need to pay attention to interest rates. Although this has been a discussion for several years now, based on the Fed’s decision to increase rates in December 2015 shows that the economy is strong and should continue to head in a positive direction. That being said, the value of retail assets should continue to grow and buyers can expect to pay prices that reflect lower cap rates and a higher price per square foot.  There should be some good opportunity moving forward in 2016 and into 2017. New retail development and “adaptive reuse” would be something to pay attention to.  Although good for the economy and state development, it can potentially have a negative impact on the existing retail centers in the area as they would no longer be as desirable to prospective and current tenants like before. Future development will add additional retail space that will begin to replace the less desirable retail space, growing vacancy in older, less up-to-date centers. This clearly can present opportunities for some buyers that are more hands on and have the wherewithal to revitalize a center, which has become a common theme throughout the Greater Phoenix market. Sellers with older or outdated retail centers may not see benefit from these new developments as they will need to adjust their property values or pricing accordingly. GlobeSt.com: Are there any specific markets that are hot in retail right now? If so, where? LevRose retail team: The Greater Phoenix area has several markets or trade areas that have become very desirable to a large spectrum of groups within commercial real estate, especially retail.  South Scottsdale is host to one of the hottest areas for retail and is becoming a hotspot for tech-startups and Silicon Valley back office type users. This has created a demand for a dominant retail presence that ties in with high numbers for daytime employment along with several new residents filling the recently built apartments and condominium developments. Downtown Phoenix has also heated up as several multi-family developers have taken charge in urbanizing the area. We have seen growth in daytime employment as well as more companies moving in, as well as an approved expansion for Arizona State University ‘s biomedical campus and the relocation of its Sandra Day O’ Connor College of Law . All of this has led to more demand for retail, while also catching the eyes of several local restaurateurs who are capitalizing on this growth. North Scottsdale remains to be a popular trade area because of the large consumer draw for high-end shopping, entertainment and fine dining at both Kierland Commons and the newer and growing Scottsdale Quarter . Overall, Scottsdale and Phoenix continue to lead our state as the two places most desired for all retail opportunities. GlobeSt.com: What are tenants looking for in retail in 2016? LevRose retail team: We are beginning to experience tenants running a successful business and either looking to expand or relocating from their current locations to better or higher quality centers. Mostly we are seeing expansion through quick service restaurants, national, regional and even local users. With growing competition in all areas of retail, tenants are interested in finding the right location. Most seek areas that will bring the most traffic from co-tenancy, demographics and traffic patterns. These are going to be key for picking the right location. Once that area is identified, access and visibility will become vital in order to compete with other competitors in the area. All of these will be an important part of the calculation for success in retail.