SAN FRANCISCO—During the recession, every market was hit, but some were hit harder than others. One lesson learned was core markets with concentrations of population, daytime employment and transit had shorter and shallower recessions than the suburban edge, says retail specialist John Cumbelich. As new development has reignited in the post-recession recovery, it has been noticeably different and more core-oriented. Developers, lenders and users are now more cautious about exposure to outlying markets and weaker fundamentals. Those edge markets, once coined as hot growth markets too frequently proved to be high-risk markets, populated by homeowners who barely qualified for home loans and who were among the first to hit the exit door when employers started issuing pink slips as the economy teetered, says Cumbelich.
Today, retailers are far more inclined to pay the freight for a premium core location, rather than save rent dollars and gamble with a location where fundamentals aren't proven. Success for the retail or restaurant brand has always been linked to customers. More so than ever before, retailers and restaurants are challenging themselves and the brokers who hunt sites for them to find ways to grow in the core, adjust offerings and learn urban retail, even if it costs more, says Cumbelich. The lower occupancy costs in non-core markets act as a constant temptation to challenge this discipline for growing brands. But with an economic recovery now in its sixth year, growth brands have yet to resume pre-recession thinking and chase low rents around the edges, he says.
Today, despite sky-high rental rates, occupancy levels at historic highs and the lowest interest rate environment in more than 50 years, there are scarcely any big shopping centers in development on the suburban edge. Meanwhile, Target and Walmart are trying urban and express concepts, grocery stores keep getting smaller, sit-down restaurants have been replaced by fast casual concepts and more retailers have embraced multi-level stores in proven core markets.
Managing to grow store count while focusing on core markets creates a new set of challenges for the retailer or restaurant, beyond just paying higher rents. Sites still have to offer convenient parking, proximity to anchor tenant traffic and ease of access. In short, the process of building a successful store network is more challenging and more nuanced than it's ever been, says Cumbelich.
One company that is bucking this core markets notion is Passco Cos. LLC of Irvine, CA. It has secured four national retail tenants for its retail asset, Hanford Mall near Fresno, CA: Buffalo Wild Wings, Five Guys, Dunkin Donuts and Pieology. Dunkin Donuts will begin construction shortly, while all other tenants are already under construction, with planned openings in summer 2016. Hanford Mall, located at 1675 West Lacey Blvd. in Hanford, CA is anchored by Kohls, Forever 21, Sears, JC Penney and Cinemark 8.
“As a retail owner since our inception in 1998, Passco has always found new ways to optimize our retail assets,” says Todd Siegel, vice president retail of Passco Companies. “Retail turnarounds are a specialty for our team. We are experienced in transforming large retail centers, and we are able to draw upon that strategic knowledge to create value in our mall assets as well.”
Siegel notes that a focus on dining and experience tenants continues to be a priority for retail owners in today's market.
Siegel tells GlobeSt.com: “As retail owners, we continue to evolve in order to meet consumer demand and ensure that our centers thrive. In this case, we recognized the need for new, fresh dining options that would appeal to the local community. By bringing in nationally recognized eateries, we are re-energizing the center, creating new attractions that will increase retail traffic, and ultimately increasing value for our investors.”
Indeed, this healthy pressure is forcing a new generation of developers to reimagine the business, repurpose under-developed core real estate sites, and form strategic partnerships with the retail and dining brands that can best adapt to the next evolution of retail, says Cumbelich.
SAN FRANCISCO—During the recession, every market was hit, but some were hit harder than others. One lesson learned was core markets with concentrations of population, daytime employment and transit had shorter and shallower recessions than the suburban edge, says retail specialist John Cumbelich. As new development has reignited in the post-recession recovery, it has been noticeably different and more core-oriented. Developers, lenders and users are now more cautious about exposure to outlying markets and weaker fundamentals. Those edge markets, once coined as hot growth markets too frequently proved to be high-risk markets, populated by homeowners who barely qualified for home loans and who were among the first to hit the exit door when employers started issuing pink slips as the economy teetered, says Cumbelich.
Today, retailers are far more inclined to pay the freight for a premium core location, rather than save rent dollars and gamble with a location where fundamentals aren't proven. Success for the retail or restaurant brand has always been linked to customers. More so than ever before, retailers and restaurants are challenging themselves and the brokers who hunt sites for them to find ways to grow in the core, adjust offerings and learn urban retail, even if it costs more, says Cumbelich. The lower occupancy costs in non-core markets act as a constant temptation to challenge this discipline for growing brands. But with an economic recovery now in its sixth year, growth brands have yet to resume pre-recession thinking and chase low rents around the edges, he says.
Today, despite sky-high rental rates, occupancy levels at historic highs and the lowest interest rate environment in more than 50 years, there are scarcely any big shopping centers in development on the suburban edge. Meanwhile, Target and Walmart are trying urban and express concepts, grocery stores keep getting smaller, sit-down restaurants have been replaced by fast casual concepts and more retailers have embraced multi-level stores in proven core markets.
Managing to grow store count while focusing on core markets creates a new set of challenges for the retailer or restaurant, beyond just paying higher rents. Sites still have to offer convenient parking, proximity to anchor tenant traffic and ease of access. In short, the process of building a successful store network is more challenging and more nuanced than it's ever been, says Cumbelich.
One company that is bucking this core markets notion is Passco Cos. LLC of Irvine, CA. It has secured four national retail tenants for its retail asset, Hanford Mall near Fresno, CA: Buffalo Wild Wings, Five Guys, Dunkin Donuts and Pieology. Dunkin Donuts will begin construction shortly, while all other tenants are already under construction, with planned openings in summer 2016. Hanford Mall, located at 1675 West Lacey Blvd. in Hanford, CA is anchored by Kohls, Forever 21, Sears, JC Penney and Cinemark 8.
“As a retail owner since our inception in 1998, Passco has always found new ways to optimize our retail assets,” says Todd Siegel, vice president retail of Passco Companies. “Retail turnarounds are a specialty for our team. We are experienced in transforming large retail centers, and we are able to draw upon that strategic knowledge to create value in our mall assets as well.”
Siegel notes that a focus on dining and experience tenants continues to be a priority for retail owners in today's market.
Siegel tells GlobeSt.com: “As retail owners, we continue to evolve in order to meet consumer demand and ensure that our centers thrive. In this case, we recognized the need for new, fresh dining options that would appeal to the local community. By bringing in nationally recognized eateries, we are re-energizing the center, creating new attractions that will increase retail traffic, and ultimately increasing value for our investors.”
Indeed, this healthy pressure is forcing a new generation of developers to reimagine the business, repurpose under-developed core real estate sites, and form strategic partnerships with the retail and dining brands that can best adapt to the next evolution of retail, says Cumbelich.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
