Commercial Real Estate Investing From A-Z What's The Future of Retail, How Should a Retail Investor Approach Their Investments in Today's World?
Today we are reviewing where is retail going, how should a retail investor think and approach their investments in today's world, what are tenants looking for in a retail center, and what are major items that national tenants and landlords want to see in their lease.
Read the full interview here: https://montecarlorei.com/where-is-retail-going-lease-negotiation-national-tenants/
Where do you think retail is going based on your experience?
I'm sure a lot of folks that have come on your podcast talked about the retail evolution, the apocalypse, and that retail is dying. And when you look at the history of retail, it has always evolved based on consumer demands and convenience. From a macro view, we are seeing a slowing in the development pipeline, slightly higher cap rates compared to other sectors, and I'd argue we're a little overbuilt in the United States when it comes to retail. However, there is a tremendous amount of product that is obsolete, a lot of C lass C malls and Class C shopping centers across the US need to be repurposed and rezoned. We're starting to see this happening now, I go back to this idea that Sears completely disrupted retail back when they came out with their catalog, and then, the next flavor of the month was "It's more convenient to go to the mall." And then in the 90's power centers just ballooned, you had these huge giant anchors, and they were fulfillment stores. Now you have online shopping, and we're seeing all of these things shift out.
How should a retail investor think and approach their investments in today's world?
I think that regardless of the asset, you have to take a longterm vision on real estate based on strong fundamentals. We can't control what the Fed is going to do tomorrow, we can't control what cap rates are, and where they're going to trend, so I don't want to spend a lot of time worrying about those things. Commercial real estate is so cyclical, and it's always in either one of four phases. At the end of the day you want to find well located assets with really strong demographics, one, three and five mile radius, understand how many households, what's the average household income, what's the population, how's it growing, how's the job market? Just going back to the basics. And then we want to look for attractive opportunities. When you're in a rising cap rate market, you have to find ways to grow your NOI. The only way to do that is to really dig into the market dynamics and understand where the value is. There’s an art to underwriting shopping centers, it’s not the broker's job because they will say that you can just lease up this vacancy in three to six months, and this is the market rate they’re going to pay. There are so many more nuances to getting leases done, you have to find ways to lease and attract the right tenants.
As you work with a lot of tenants, what are they looking for in a retail center nowadays?
It has always been about market share, finding sales, and finding the desirable tenant mix. Retailers are getting so sophisticated when it comes to understanding what the market analytics, trends, and where they need to be in the marketplace. Demographics play a huge role in this: understanding traffic counts, traffic patterns, visibility, the amount of parking that they will need, and they want to partner with well-respected landlords that are going to take care of the asset.
Jason Ricks
www.concordiarealty.com
jason@concordiarealty.com
Blog post: http://www.concordiarealty.com/resources/crc020-online-sales-vs-brick-and-mortar-retail/