Part 2 of 2
LOS ANGELES—As we wrote in part one of this two-part series in preparation for the upcoming ICSC Western States conference, deals in the retail space are very much still happening. According to Shauna Mattis, a SVP at JLL, the company gets calls every day from prospective retailers looking to open new stores.
“Retail is evolving, not declining, to meet the demands of today's consumers,” says Mattis. “As a result, some stores will close when they are no longer relevant but others will come in to take their place. It's a healthy part of our industry, even if it is sometimes painful along the way, and keeps the retail horizon exciting in the future.”
Joseph Williams, SVP of the Woodmont Co., tells GlobeSt.com that with consumer metrics strong and the continuation of store closures and right-sizing, there is tremendous opportunity for both landlord's and tenant's in the West Coast retail landscape. “The Internet will continue to erode brick and mortar sales, but its impact is over-hyped in the news.”
Williams explains that the larger issue is that the US is over-stored at 24 square feet of retail per capita, highest in the world; and the department store model, and thus the regional mall model, has become antiquated. “While this will continue to result in closures, it also presents opportunity throughout the West Coast as dominant top tier retail venues will become even more dominant as lesser performing venues fail and need to change.”
The retail closures, he adds, may also yield opportunities for emerging retailers and restaurants to penetrate legacy assets in high barrier to entry markets. “To get it right and survive, today's retail must focus on experience and convenience incorporating food and entertainment with a diverse merchandising mix.”
When we spoke with Patrick S. Donahue, chairman and CEO of Donahue Schriber, he said that “While the narrative in the press continues to herald the problems of retail, our fundamentals have never been better. We are 97% occupied with average base rents at record highs.”
He also pointed out that there is a complete lack of new supply which translates to competition. “We believe this lack of new supply of space will continue as a positive driver to the overall fundamentals in our portfolio for at least the next two to three years. We continue to have strong interest from restaurants, beauty, fitness, and service tenants. I would certainly rather have a poor narrative with great fundamentals versus the other way around.”
Stan Johnson Co. regional managing director, Myles Helm, tells GlobeSt.com that in the single tenant net lease retail category, overall sales volumes have trended upward each quarter since Q2 2016 except during Q2 2017.
“Retail cap rates, on average, have remained somewhat stable holding at approximately 6.1% during the past year,” he explains. “Headwinds created by the possibility of rising interest rates, coupled with retail tenants closing stores or reducing their new openings in response to increasing internet sales, has resulted in a temporary pause by some retail single tenant net lease investors, particularly by domestic private buyers, which make up 63% of the retail single tenant net lease buyer pool.”
Check back with GlobeSt.com as the ICSC Western States conference gets closer for all things retail.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
