Daily needs brick-and-mortar retail in urban markets is still dominating retail investment activity. The demand for those properties, however, is so high that opportunities in urban markets are limited. Investors looking to place capital—especially 1031 exchange buyers—are now looking in adjacent suburban markets for opportunities. Kevin Fryman of Hanley Investment Group recently brokered such a deal between a 1031 exchange buyer and a private investor of Seco Canyon Village in Santa Clarita. The deal highlights the emerging trend and the continued demand for daily needs retail properties, especially as the industry adjusts to the Amazon-Whole Foods merger. To find out more about the state of daily needs retail, why investors are looking into suburban markets, and how the new ecommerce model is fitting in, we sat down with Fryman for an exclusive interview.

GlobeSt.com: Neighborhood retail centers dominated the retail market activity last year. Have you seen the same demand for this niche this year?

Kevin Fryman: Daily needs, internet-resistant shopping centers are still very attractive to both private and institutional investors. These centers include tenants that are not in direct competition with Amazon like gyms, quick and casual serve and sit-down restaurants, cell phone and tax preparation services, urgent care centers, and dental, optometrist, hair and nail services. They offer products, services or experiences that you can't get online.

As a hedge against the “Amazon effect” and inflation, we are seeing an increase demand for retail properties primarily occupied by internet-resistant tenants. More than two-thirds of our year-to-date transactions have been in this category versus less than half at this point in time last year.

GlobeSt.com: How does demand in suburban markets, like Santa Clarita, compare to urban markets, and how are the players different?

Fryman: The demand for properties in urban markets continue to be greater than suburban markets, but the sales velocity is extremely low. Because of this lack of inventory, buyers who are required to place capital, either due to private investors' 1031 exchanges or institutional investors' fund mandates, suburban markets such as Santa Clarita are seen as a favorable alternative. The demographics are very affluent, the master-planned communities create an ideal retail environment for expanding national and regional tenants and there continues to be more growth through new residential developments.

GlobeSt.com: Has the Amazon/Whole Foods merger affected demand at all, either positively or negatively?

Fryman: The effect of Whole Foods in the retail real estate investment market is still too early to tell, although grocery stocks are definitely down since the merger was announced. The stock prices of North American grocers had performed well, increasing by 2.3% over the last 12 months. However, over the last 30 days, these same grocer stock prices are down 3.0%. The Amazon/Whole Foods merger has negatively impacted the stock prices as it is perceived that they will further contribute to price wars and margin compression.
From a consumer standpoint, I think you are going to see lower prices at Whole Foods Market and other grocers stepping up their game and catering to those customers who want ready-to-serve meals and their food delivered. With Amazon's tremendous data collection abilities and its online and restaurant-quality food convenience, I can see this impacting both the grocery and the restaurant business in the future.

GlobeSt.com: This sale commanded multiple offers and hit the list price. Has pricing in general stabilized? Give me a snapshot of pricing for this type of retail product in suburban markets?

Fryman: According to CoStar, in Los Angeles County, between January and September 2016, in the category of multi-tenant stabilized retail (non-grocery shadow anchored and non-shadow anchored) there was a gross transaction volume of $483 million compared to 2017 for the same period, there was a gross transaction volume of $529 million. While demand for secondary markets has softened in 2017 due to buyers becoming more selective, the demand for well-located Los Angeles County real estate continues to remain strong.

GlobeSt.com: What is your outlook for retail activity in this market for the remainder of the year?

Fryman: My outlook for Santa Clarita is very positive. While there were three institutional grocery-anchored transactions in Santa Clarita in 2016 totaling $190 million, including two of which Hanley Investment Group brokered, there has already been one Smart & Final-anchored center sold in 2017 for $69.5 million in Santa Clarita.

Daily needs brick-and-mortar retail in urban markets is still dominating retail investment activity. The demand for those properties, however, is so high that opportunities in urban markets are limited. Investors looking to place capital—especially 1031 exchange buyers—are now looking in adjacent suburban markets for opportunities. Kevin Fryman of Hanley Investment Group recently brokered such a deal between a 1031 exchange buyer and a private investor of Seco Canyon Village in Santa Clarita. The deal highlights the emerging trend and the continued demand for daily needs retail properties, especially as the industry adjusts to the Amazon-Whole Foods merger. To find out more about the state of daily needs retail, why investors are looking into suburban markets, and how the new ecommerce model is fitting in, we sat down with Fryman for an exclusive interview.

GlobeSt.com: Neighborhood retail centers dominated the retail market activity last year. Have you seen the same demand for this niche this year?

Kevin Fryman: Daily needs, internet-resistant shopping centers are still very attractive to both private and institutional investors. These centers include tenants that are not in direct competition with Amazon like gyms, quick and casual serve and sit-down restaurants, cell phone and tax preparation services, urgent care centers, and dental, optometrist, hair and nail services. They offer products, services or experiences that you can't get online.

As a hedge against the “Amazon effect” and inflation, we are seeing an increase demand for retail properties primarily occupied by internet-resistant tenants. More than two-thirds of our year-to-date transactions have been in this category versus less than half at this point in time last year.

GlobeSt.com: How does demand in suburban markets, like Santa Clarita, compare to urban markets, and how are the players different?

Fryman: The demand for properties in urban markets continue to be greater than suburban markets, but the sales velocity is extremely low. Because of this lack of inventory, buyers who are required to place capital, either due to private investors' 1031 exchanges or institutional investors' fund mandates, suburban markets such as Santa Clarita are seen as a favorable alternative. The demographics are very affluent, the master-planned communities create an ideal retail environment for expanding national and regional tenants and there continues to be more growth through new residential developments.

GlobeSt.com: Has the Amazon/Whole Foods merger affected demand at all, either positively or negatively?

Fryman: The effect of Whole Foods in the retail real estate investment market is still too early to tell, although grocery stocks are definitely down since the merger was announced. The stock prices of North American grocers had performed well, increasing by 2.3% over the last 12 months. However, over the last 30 days, these same grocer stock prices are down 3.0%. The Amazon/Whole Foods merger has negatively impacted the stock prices as it is perceived that they will further contribute to price wars and margin compression.
From a consumer standpoint, I think you are going to see lower prices at Whole Foods Market and other grocers stepping up their game and catering to those customers who want ready-to-serve meals and their food delivered. With Amazon's tremendous data collection abilities and its online and restaurant-quality food convenience, I can see this impacting both the grocery and the restaurant business in the future.

GlobeSt.com: This sale commanded multiple offers and hit the list price. Has pricing in general stabilized? Give me a snapshot of pricing for this type of retail product in suburban markets?

Fryman: According to CoStar, in Los Angeles County, between January and September 2016, in the category of multi-tenant stabilized retail (non-grocery shadow anchored and non-shadow anchored) there was a gross transaction volume of $483 million compared to 2017 for the same period, there was a gross transaction volume of $529 million. While demand for secondary markets has softened in 2017 due to buyers becoming more selective, the demand for well-located Los Angeles County real estate continues to remain strong.

GlobeSt.com: What is your outlook for retail activity in this market for the remainder of the year?

Fryman: My outlook for Santa Clarita is very positive. While there were three institutional grocery-anchored transactions in Santa Clarita in 2016 totaling $190 million, including two of which Hanley Investment Group brokered, there has already been one Smart & Final-anchored center sold in 2017 for $69.5 million in Santa Clarita.