Maybe retail will get gifts from Santa this year?

Just like many in the commercial real estate world, the retail brokerage community has had to struggle to find any bright spots since late 2008. But as we near the holiday shopping season, I can see three trends that may be bringing gifts to both retail owners and tenants.

These trends are all signs that we are bouncing along the bottom of the cycle and are now likely to start seeing some growth in the sector. My colleagues at NorthMarq aren’t giddy yet, but we at least believe that attitudes are changing, with less desperation and more optimism from both landlords and tenants. While we haven’t completed our year-end market research to test these theories using real data, we know that the energy we see today is likely to show up in the numbers in the next 12-18 months.

Stabilize the assets
Our counsel to landlords today is to look for ways to stabilize the asset, including these options:

  • Flexible lease length. This approach has allowed pop-up stores to start to fill vacant space and bring new energy to many retail centers. The landlord wins with new traffic and interest in the center. Tenants can test new concepts and new locations with less risk. Some examples:  Toys R’ Us is opening smaller temporary stores for the holiday season; Borders Books is trying scaled-down, 2,500 sf locations; many niche clothing designers are trying weekend or short-term storefront concepts to support new collections. In addition, Spirit Halloween pop-ups have gained steam across the country with over 870 stores this year, an increase of 150 from 2009.
  • Revising rent structures.  During most of 2009, tenants came in droves to landlords asking for rent relief in the form of rent reduction or rent abatement, often trading for extended term or shifting the rent to be repaid later in the term.   Those requests have dwindled for the most part because the tenants that have weathered the storm have found another way to reduce expenses and position themselves for future stability and growth.   Landlords have also become more reluctant to offer the concessions, believing that better days are ahead.

More participation in merchant associations
A trend we are also seeing is a re-emergence of landlord-organized merchant associations.  Years ago these associations were created to market the retail center using contributions from tenants for special events, advertising and direct mail. Those associations were almost always rejected by national retailers, who had their own marketing budgets. Today, we’re seeing a return to the merchant’s association, but now this is a joint effort by both tenants and landlords working to increase traffic and improve interest in the center and has become part of the shopping center’s budget at the landlord’s cost.  National retailers are becoming more supportive of the grass roots efforts. A few recent examples:

  • Village of Blaine: The center’s program started two years ago and has since created quarterly events including a July sidewalk sale, Halloween Trick or Treating, Vintage Car Show and a tenant-created coupon book that is sent to local businesses and residents.
  • Oxboro Square in Bloomington: The center’s owner sponsors a fall event with free pumpkins and treats as well as a summer Twins Family Day to bring families to the property.  Ultimately the cross-shopping between the event and retailers is significant.

Retailers looking for better space
With vacancy rates at 10-year highs, many Class-A centers have vacant space for the first time. Taking advantage of this opportunity are discounter retailers, including Goodwill, consignment stores and dollar stores. The changes in the market have offered them the ability to afford premier space without the premier price of three or four years ago. Landlords who previously would not have entertained an offer from a discounter are now seeing the value of a new tenant mix.

As the market continues to stabilize, it’s good to see more collaboration and equilibrium between landlords and tenants. Fighting for survival is hopefully in the past, and now we need to look forward to 2011 and a year of gifts as conditions continue to improve.

***
Tricia Pitchford, vice president-Retail Brokerage at NorthMarq, has been a retail broker since 1997 and specializes in representing both landlords and tenants.  She serves as a board member of the Minnesota Shopping Center Association (MSCA) and the Minnesota Commercial Association of Realtors (MNCAR). She is also a member of the International Council of Shopping Centers (ICSC) and ChainLinks Retail Advisors.

About Cushman & Wakefield/NorthMarq

​Cushman & Wakefield/NorthMarq is a joint venture formed in September 2011 by NorthMarq Real Estate Services and the Minnesota operations of global real estate services firm Cushman & Wakefield. By combining the talent of both organizations at the regional level with the global platform of Cushman & Wakefield, we offer clients the best combination of regional strength and global capabilities. The result: the leading commercial real estate firm by all measures in the Upper Midwest.
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