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TRC Blog

August 21 , 2009

Retail space: Experts offer their opinions on the future of shopping

Friday, August 21, 2009

By STEVE BROWN / The Dallas Morning News
With the slowdown in consumer spending, no area of the commercial real estate business has been hit harder than retail building.

Shopping center occupancies have fallen in the last 18 months as several national store chains shut down and struggling local retailers retrenched.

"It won't be easy to lease the vacant spaces, but it has created a lot of opportunity for new users, along with retailers that want to move to a better location," said Clay Smith, SRS Real Estate Partners' CEO and president.

Luckily for current landlords, tight-fisted lenders have cut off funds for shopping center construction. Building this year is expected to total less than 3 million square feet in Dallas-Fort Worth – the least in a decade. And the forecast is for even less new retail space to come onto the market in 2010.

Retailers still in business are scrambling to adjust to a new consumer reality.

"The so-called new frugality certainly has hit high-end retailers the hardest, and current sales trends say they're not coming back strong any time soon," said Herb Weitzman, Weitzman Group chairman. "But they're adjusting, and adjusting fast."

In the midst of the worst recession in generations, some shopping center veterans worry about a long-term shift.

"Luxury retail will always have their customer," said Mickey Ashmore, president of United Commercial Realty.

"However, conspicuous consumption by the baby boomers may well be a thing of the past.

"Right-sizing, less is more and mobility seem to be a prevalent philosophy today."

Here's what else retail real estate experts have to say:
"Consumer confidence is still apparently low. Our industry depends on retail sales....Recovery will not be immediate; it will be a steady hill climb. Well-located retail spaces will lease; the question may be: At what rent? However, there will be nothing easy about filling these boxes. The sourcing of tenants and the underwriting of deals has become a tedious process, and a protracted one today." -Mickey Ashmore, president and CEO, United Commercial Realty
“A majority of tenants we speak with think things are gradually improving… However, many of our landlords believe that things may get much worse for them.  Since the beginning of the year, our company has listed over 40 empty boxes for a total of 2.2 million square feet.  What is encouraging is that activity on these properties is much greater than we expected, and most of the interest is from quality retailers.” – Mike Geisler, partner, Venture Commercial Real Estate LLC
“So far, we are doing a good job of adapting and filling empty stores… The boxes have become low-cost alternatives for those retailers currently growing, right-sizing and repositioning their stores.  That said, the lack of expanding retailers and formation of new concepts certainly undermines demand.  Consumer spending is going to lag consumer confidence by… at least six months.” – Steve Lieberman, CEO, The Retail Connection
“The problems with existing mortgages and lack of new loans will further harm the retail centers.  Filling current empty boxes will continue to be more difficult.  Less tenant demand and a major push for lower rents are complicating deals… There will be a reduced demand in the near term for luxury items… All consumers have become more prudent, and this has carried over to the luxury buyers.” – Frank Mihalopoulos, principal, Corinth Properties
“The best thing that has happened is no new retail being built, which is helping lease-up on existing property… We have built far too much retail in D-FW over the last five years… For a while, it seemed like every piece of land in North Texas was a “proposed retail center” site.  Thankfully, that’s over, and underwriting new retail is almost impossible.” – Vaughn Miller, president of retail division, executive vice president and general manager, Henry S. Miller Cos.
“Regarding how long the retail sector will be down, I do think there is a reasonable chance we stay down for longer than the six to nine months others are projecting.  I view the new paradigm as a move to value… I think high-impact, high-value proposition retailers will certainly be strong… I do not believe that all luxury shopping is dead, but I believe folks want value, not just a fancy name or logo.” – Terry Montesi, founding partner, Trademark Property Co.
“While we have seen the bulk of the bankruptcy filings from national retailers, we are now going to see more “mom and pops” be forced to close up shop…  As people get laid off, some are opening start-up retail businesses.  Unfortunately, a high percentage of these businesses don’t make it…  New concepts will be launched.  However, you can’t launch it people won’t buy it.  It will take time.” – Jennifer Pierson, senior VP | investment properties, CB Richard Ellis | Capital Markets
“I believe that we have suffered through the worst and that we are starting to see some improvement… But we still have to digest some of the lingering effects of the credit crisis… Clearly, there is a large part of our population that has changed their spending habits, and that will continue for quite a while.  Having said that, when the credit crisis is behind us, I think you will see a rebound in… higher-end retail.” – Clay Smith, CEO and president, SRS Real Estate Partners
"These empty boxes....[are] in fairly new construction for the most part, and they benefit from good locations and co-tenancy. That said, it's going to take longer to fill these than in the past...There are concepts out there looking, but in today's market, we'll see only the home-run locations backfilled during the short term. Local and regional tenants are active prospects to backfill these vacancies." -Herbert Weitzman, chairman, Weitzman Group.
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