Commercial Investment Real Estate September/October 2013 - Page 37

T e sharp rise in e-tailing and its game-changing impact has created a new normal in the retail real estate sector. Major national retailers are evolving their strategies in an ef ort to “survive and thrive” in this new market dynamic. “T e good news is that even though Apple, Net- f ix, Amazon, eBay, and other online giants killed record stores and video rental shops and are in the process of doing the same to elec- tronics and bookstore big boxes, e-commerce will never replace the brick-and-mortar shopping experience,” says Sean Glickman, CCIM, managing director of Glickman Retail Group in Maitland, Fla. Research shows and many retail industry experts agree that con- sumers are settling into a preference for a “blended” shopping experi- ence. In a recent Forrester Research survey, shoppers said visiting a store served as the most important source of product research before purchasing in every major consumer category except travel. “T is research speaks to the need for retailers to focus their tech- nology ef orts inside the store,” said Dan Seliger, digital strategist for 3GTV Networks, in a recent Brick Meets Click blog post. “We have to stop thinking of the Internet as something tethered to a home computer or a shopper’s smartphone. T e goal should be a borderless communication continuum where every channel is connected. … Smart retailers can use this approach to help overcome the inherent limitations of brick and mortar while of ering shoppers a blended in-store experience built around their needs.” T e impact of retailers’ exploration of the online environment is creating new and — of entimes very challenging — realities for their real estate footprints. From big boxes to inline neighborhood centers in large markets to small towns, retail real estate experts are looking for ways to evolve to ensure their spaces meet both retailers’ and consumers’ rapidly changing needs. Commercial Investment Real Estate asked a variety of retail experts to weigh in on key questions facing the industry in the current market. CCIM experts include Glickman; Shawn Massey, CCIM, partner, T e Shopping Center Group in Memphis, Tenn.; Francis Rentz, CCIM, managing director/senior adviser, Southland Com- mercial Advisors in Tallahassee, Fla.; and Jef Yetter, CCIM, LEED AP, director of real estate, Express Oil Change & Service Center in Greensboro, N.C. CIRE: Aside from e-tailing’s ripple effects, what are some of the biggest challenges facing the retail real estate sector right now? Glickman: T e unpredictable economy, consumer conf dence, and increased taxes that are cutting into consumers’ disposable income are some of the biggest issues. Yetter: T e continually changing, idealistic development regu- lations imposed by the local municipalities is our biggest issue. Express Oil’s business is typically driven by an initial impulse buy, and the local municipalities’ trend of limiting access and visibility directly af ects our ability to conduct business. Rentz: Investors with B and C class shopping centers or a weak anchor on the decline must f nd reuse tenants to f ll vacant spaces. T is typically means nonretail, nontraditional retail, or service tenants, which of en translates into lower rent or greater capital investment to reshape the property. (See “Shopping Center Shif ,” May/June 2013 CIRE, for a look at landlords’ current tenanting strategies.) Massey: T e lack of good quality retail space availability is the big- gest challenge. With the lack of new development since 2008, we f nd our clients in search of space that is simply not built today. CIRE: What factors are infl uencing retailers’ site selection and acquisitions decisions in this environment? Yetter: We have seen a major increase in competition from a pad- site buyer standpoint. T is has produced a scarcity of viable sites and driven up pricing in our larger markets. T is is due in large part to the resurgence of quick-service restaurants, bank branches, and similar out-parcel retailers. T is is also a result of the lack of new developments being delivered as compared to the pre-economic downturn conditions. Massey: Most retailers are very risk adverse right now — entering areas where they can avoid unfavorable zoning or adverse site con- ditions is critical. Retailers are becoming ever-more data driven as well. T ey are performing extensive research to get a clear picture of the factors shaping an area’s retail environment, including demo- graphic, socioeconomic, and psychographic prof les, the workplace population, and consumer spending patterns. 2Q13 U.S. Retail Fundamentals Vacancy Rate 10.5% QOQ change: -10 bps Markets with Largest YOY Vacancy Drop YOY change: -30 bps Fort Worth, Texas -130 bps Louisville, Ky. 2.2% Louisville, Ky. -90 bps Pittsburgh 2.2% Wichita, Kan. -90 bps Raleigh-Durham, N.C. 2.2% Rent $19.19 QOQ change: 0.3% YOY change: 0.8% Markets with Largest YOY Rent Gain Source: Reis September | October | 2013 35